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CONTRACTUAL RISK TRANSFER SEMINAR

CONTRACT RISK ALLOCATION


Presented by

Gerald I. Katz
Partner Katz & Stone, L.L.P.

Monday, October 29, 9:00 a.m.-5:00 p.m.

Copyright 2001 International Risk Management Institute, Inc.

Gerald I. Katz
Partner Katz & Stone, L.L.P.
Mr. Katz has speaking responsibility at two IRMI Construction Risk Conference sessions: He is a presenter for Mondays all-day seminar, Contractual Risk Transfer, and will also be presenting Workshop A, Completed Operations Risks. He is a partner in the law firm of Katz & Stone, L.L.P., with offices in Vienna, Virginia; Washington, D.C.; and Rockville, Maryland. The firm specializes in resolving construction disputes. He has extensive experience in representing owners, contractors, and designers in complex construction litigation. Mr. Katz is a member of the Bars of the District of Columbia, Virginia, Maryland, United States Supreme Court, and United States Claims Court. In addition, he serves as an arbitrator on the American Arbitration Associations Construction Industry Arbitration Panel. Mr. Katz lectures and speaks frequently to owners, contractors, public building officials, subcontractors, suppliers, design professionals, sureties, and others involved in construction, on such topics as construction risk management, negotiating construction contracts, construction claims and claims prevention, liability of the design professional, and construction insurance issues. Mr. Katz has also written books on topics of interest to the construction industry, such as Construction Claims in Virginia, Construction Law for the Design Professional, and Virginia General Conditions for Public Projects, published by the University of Virginia, and Construction Lien Law in Virginia, Maryland and the District of Columbia and Negotiating, Interpreting and Administering Construction Contracts, published by Professional Education Systems. Mr. Katz has spoken to Associated General Contractors of America conventions on the subjects of When Not To Abandon the Job and Nurse Him or Curse Him: Facing Subcontractor Default. A repeat Construction Risk Conference speaker and recipient of IRMIs Words of Wisdom (WOW) award, Mr. Katz has also conducted seminars for such construction trade associations as Associated Builders and Contractors; National Utility Contractors Association; American Subcontractors Association; Associated General Contractors of America; American Institute of Constructors; Virginia Utility Contractors Council; Heavy Construction Contractors Association; Plumbing, Heating, Air-Conditioning and Cooling Contractors Association; Contractors Association of West Virginia; Virginia Building Material Association; Maryland General Contractors Association; Construction Management Association of America; Fabricating Manufacturers Association; Virginia Roofing Contractors Association; National Association of Surety Bond Producers; Reliance Insurance; The St. Paul Companies; Bermuda Contractors Association; American Contractors Insurance Group; Center for Aviation Research & Education; Barbados Association of Quantity Surveyors; Korean Contract Management Association; and China National Petroleum Corporation. Mr. Katz holds both juris doctor and a bachelor of arts with distinction degrees from the University of Virginia.

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Notes
This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex.

TABLE OF CONTENTS
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I. INTRODUCTION ........................CRT7
A. B. C. Definition...............................CRT7 The Construction Contract........CRT7 A Risk Management System .....CRT7 3. 2. Defense that indemnification doesnt extend to indemnitors ultra-hazardous activities/strict liability ......................... CRT26 Defense that indemnification is limited to contractually-required insurance coverage ........ CRT26 a. An indemnification clause can be drafted this way if the parties are careful.................. CRT26 The defense is available if the indemnity provision expresses a clear intention to limit indemnification liability to the stated limits of insurance provision... CRT26 A requirement of insurance is not indemnification ...... CRT26

II. INDEMNIFICATION ..................CRT8


A. B. C. D. Background ...........................CRT9 Common Law Indemnity ..........CRT9 Contractual Indemnity ........... CRT10 Categories of Indemnification Clauses ............................... CRT11 1. 2. 3. E. Broad Form ................... CRT11 Intermediate Form ......... CRT12 Limited Form ................. CRT14 4.

b.

c.

General Contract Law and the Interpretation of Indemnification Provisions ............................ CRT16 Rules of Strict Interpretation Applied Specifically to Indemnification Provisions ............................ CRT18 State Statutes Which Limit or Void Indemnification Clauses ......... CRT21 Other Relevant Differences Between States ................................. CRT22 Potential Defenses to Indemnity............................ CRT25 1. Defense that indemnification clause is void and against public policy ........................... CRT25 a. b. Response: Incorporate Savings Clause ...... CRT25 Operation of Other State Statutes................ CRT26

Defense that final payment waives right to indemnification .............. CRT26 Defense that mutual release and settlement agreement may bar a claim for indemnification .............. CRT27

F.

5.

G. H. I.

III. WHAT INDEMNIFICATION IS NOT ..................................... CRT27


A. B. C. Duty to Defend..................... CRT27 Insurance ............................ CRT29 Subrogation ......................... CRT29 1. Waiver of Subrogation .... CRT29 a. b. c. d. Content ................ CRT29 Function ............... CRT29 Caveats ................ CRT30 Examples.............. CRT31

Gerald I. Katz

IV. DRAFTING INDEMNIFICATION PROVISIONS ........................... CRT32


A. B. C. D. What Contract Terms Govern the Parties Rights ...................... CRT32 What Work is Indemnified ...... CRT33 Which Parties Are Covered ..... CRT34 For What Period of Time Will the Indemnification Clause Remain in Effect?................................. CRT35 Choice of Law....................... CRT35 Incorporation by Reference Problems ............................. CRT36

G. H. I.

Workers Compensation Problems ............................. CRT37 Effect of Settlement .............. CRT38 Conflicting Provisions and/or Lack of Reciprocal Coverage Due to Ineffective Contract Negotiation, Drafting and Administration................ CRT39 Attorneys Fees. ................... CRT39 Duties of Indemnitor. ............ CRT40

J. K.

E. F.

Table of Authorities.............................. CRT42

Gerald I. Katz

CONTRACT RISK ALLOCATION


CRT Gerald I. Katz* Katz & Stone, L.L.P.

Sources of Contractual Liability


I. INTRODUCTION
A. Definition Risk management refers to the art of identifying, analyzing, responding to and controlling project risk factors in a manner which best achieves the objectives of all participants. Contractual risk transfer is a form of risk management which has been employed for many years in the construction industry. It involves the allocation or distribution of the risks inherent to a construction project between or among contracting parties. If done effectively, risk transfer does not grossly or inequitably allocate all risk to one party, but instead places risk upon parties according to their ability to control and insure against risk. Additionally, effective risk management typically generates positive results on a project by improving project performance, increasing cost effectiveness and creating a good working relationship between contracting parties. B. The Construction Contract Risk allocation in the construction industry is established by the construction contract. The importance of the contract cannot be overemphasized. Ideally, the parties, in their contract, will assign the risks and liabilities to the party best equipped to manage and minimize them. The contracting process provides the vehicle for each party to negotiate, define and limit its rights in accordance with its goals. The risks and responsibilities associated with a specific project must be clearly allocated within the contract. In the end, the contract serves as a framework of the law between the parties and will establish which party has assumed or negated a particular risk in connection with the project. C. A Risk Management System 1. Although the contract serves as the principal risk management vehicle, parties must begin managing and minimizing risks long before the contract is signed. To avoid inequities, all parties should come to the negotiating table with some idea of their risk management goals. Unfortunately, most contractors pay insufficient attention to the risk management process (e.g., compare budget of estimating department versus dollars/investment allocated to training and maintaining cadre of risk management professionals). Risk management requires a systematic and practical method of dealing with both the predictable and unpredictable risks inherent in the construction industry. Contract admin-

2.

*This

article is coauthored by Stephen W. Smith, also of Katz & Stone, L.L.P.

Gerald I. Katz

istrators must acquaint themselves with the risks they are to manage and develop specific risk minimization strategies. Risk management typically involves the following functions: a. Risk identification: Risk identification is the essential first step for a successful project. Prior to negotiation, each party should assign at least one experienced person to identify contractual and extra-contractual risks. The risk manager must evaluate risk factors or characteristics of a risk such as the risk event, its probability of occurrence, and the amount of potential loss or gain. The impact of possible risks can be controlled to the extent the risks are effectively identified and managed. Impact analysis: Since risks influence all aspects of a project, each party should quantify the impact a risk will have on the project cost, schedule, quality and/or profit. Response system: Each party should develop a process for formulating risk management strategiesmitigation, deflection and contingency planning. Deflecting or transferring risks by contract is a common response ranging from total allocation of risk to another party or risk-sharing between two or more parties. Project managers should be educated regarding how risks can be managed by negotiating and drafting carefully considered and projectspecific contract provisions. Some basic risk management concepts are: Public worktransfer risk to others. Private worksome owners are uninterested, uninformed or naive. Reciprocal contract provisionsminimize exposure to the risks assumed. Mitigate risks by requiring and enforcing compliance with insurance provisions. Effective risk management requires project managements attention not only during the negotiating/contracting phase but throughout the entire project.

b.

c.

d.

Application of risk management system: The parties risk management strategies and goals should be reflected in the language of the contract. Parties should adopt the philosophy in the area of risk transfer negotiation that if they dont ask, they dont get.

3.

Contractual risk transfer in the construction industry is seen most frequently in contract provisions regarding indemnity, consequential damages, differing site conditions and delay. This paper focuses primarily upon indemnity provisions.

II. INDEMNIFICATION
Indemnification, also known as an agreement to hold harmless, may be defined as the obligation of one party (the indemnitor) to reimburse another party (the indemnitee) for the losses the indemnitee incurs or the damages for which it may be held liable. Indemnification issues arise frequently in construction litigation. Their impact can be significant because indemnification often shifts the burden of loss or responsibility, sometimes completely, from one party to another.

Gerald I. Katz

A.

Background Prior to the mid-sixties, indemnification provisions were rarely, if ever, seen in construction contracts. The common law, however, had already developed its own rules for shifting the burden of losses. Even today, when a person, without fault on his/her part, is compelled to pay damages occasioned by the negligence of another, he/she is entitled to equitable or noncontractual (i.e., common law) indemnity from the negligent person. In the mid-sixties, the first contractual indemnity provision appeared in the AIA General Conditions, and that provision shifted the risk of certain losses to the contractor. Since that time, the indemnification clause has become a widely-used tool to regulate loss distribution and spell out who ultimately pays for defined risks.

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B.

Common Law Indemnity Common law, or equitable, indemnification is generally not available where an express contractual indemnification agreement exists. Moreover, equitable indemnification is typically not available to a party who has been charged with or held liable for active negligence. See Medallion Dev., Inc. v. Converse Consultants, 930 P.2d 115 (Nev. 1997). Only where a party has been passively or secondarily negligent will equity impose liability on the party with primary or active negligence. See Negroni v. East 67th Street Owners, Inc., 671 N.Y.S.2d 464 (N.Y. App. Div. 1998). Courts compare the qualitative fault of the wrongdoer and use their equitable powers to shift liability entirely to the more culpable party. If the fault of each party is equal in grade and similar in character, equitable indemnity is not typically available because courts consider that a party should not be permitted to base a cause of action for indemnification on its own wrong. Below are several examples of cases addressing the issue: Delaware: New Zealand Kiwifruit Marketing Bd. v. City of Wilmington, 825 F. Supp. 1180 (D. Del. 1993). Court found that although Delaware recognizes an implied-incontract theory of indemnification, implied indemnification is limited to situations in which no express indemnification exists. In view of the express indemnification clause in the contract running from only one party to the other, indemnification could not be implied to run in the other direction and the absence of a reciprocal provision was assumed to be clearly intended. Indiana: ROTEC, Inc. v. Murray Equip., Inc., 626 N.E.2d 533 (Ind. Ct. App. 1993). Chemical tank stand manufacturer brought a third-party action against the tank manufacturer for indemnification for potential liability to the purchaser. The court noted that in the absence of any express contractual or statutory obligation to indemnify, an indemnification action will lie only where the party seeking indemnity is without actual fault but has been compelled to pay damages due to wrongful conduct of another for which he is constructively liable. The court held that a material issue of fact remained as to whether the tank stand manufacturer was entitled to indemnification from the tank manufacturer precluding summary judgment. Massachusetts: Callahan v. A.J. Welch Equip. Corp., 36 Mass. App. Ct. 608, 634 N.E.2d 134 (1994). A subcontractor who settled a negligence claim sought contribution from the general contractor. The court held that because contribution and contractual indemnity are mutually exclusive, the general contractors contractual right of indemnity against the subcontractor defeated the subcontractors contribution claim. New York: Gillmore v. Duke/Fluor Daniel, 221 A.D.2d 938, 634 N.Y.S.2d 588 (4th Dept. 1995). New York employment law made the owner/general contractor strictly liable for all workers injuries occurring on-site. The owner/general contractor brought a thirdparty action against an injured workers actual employer for common-law indemnity. The court held that the owner/general contractor did not have to prove the employers negli-

Gerald I. Katz

gence in order to obtain common law indemnification, but rather had only to prove its payment of the judgment in favor of the injured worker. New York: Negroni v. East 67th Street Owners, Inc., 671 N.Y.S.2d 464 (N.Y. App. Div. 1998). New York scaffold law imposes a non-delegable duty upon property owners for all workers injuries occurring on-site. The owner brought a third-party action against an injured workers employer for common law indemnity. The court held that the owner was entitled to common law indemnification since there was no showing that the owner exercised control over the work site or the contractors performance; therefore, owners liability was vicarious. Tennessee: Winter v. Smith, 914 S.W.2d 527 (Tenant Work Contract. Ct. App. 1995). The general contractor was entitled to common law indemnity from the owner on the claims of unpaid suppliers. The contractor and the owner had entered into an oral contract for the erection of an equestrian center, and, due to imprecise negotiation, eventually disagreed about project costs and the scope of work. The contractor was entitled to indemnification because the supplies enhanced the value of the property and it had not been paid for them at the time of its termination by the owner. California: In California, which has adopted comparative negligence, a claim of equitable indemnity can be made for an amount equal to the proportional fault of the indemnitee. Thus, even an actively negligent party could conceivably obtain indemnity. See National Union Fire Ins. Co. v. Showa Shipping Co., Ltd., 47 F.3d 316 (9th Cir. 1995). See also Continental Heller Corp. v. Amtech Mechanical Services, Inc., 53 Cal. App. 4th 500, 61 Cal. Rptr. 2d 668 (2d Dist. 1997), rev. denied, 1997 Cal. LEXIS 2609 (1997) (court concluded that a subcontractors agreement to indemnify a general contractor for loss which arises out of or is in any way connected with the subcontractors acts or omissions in the performance of its work does not require a showing that the subcontractor was at fault in causing the general contractors loss or that its performance was a substantial or predominating cause of the loss).

C.

Contractual Indemnity Contracting parties normally utilize indemnification clauses to shift the risk of a variety of liabilities. In general, indemnification clauses achieve the following: 1. Transfer risks from one party to another regardless of fault. For instance, the general contractor may assume the owners risks and subcontractors may assume the general contractors risks. The underlying concept for this risk transfer is to pass risk to another party who may be in a better position to monitor and protect against the risk or in a better financial position to accept and insure against the risk. As such, indemnification provisions may: a. b. c. Transfer liability for damages and/or judgment. Transfer the duty to defend, i.e. the cost of litigation. Transfer or distribute the duty to insure. Contractual liability insurance insures against the risk or liability assumed by virtue of hold-harmless or indemnification agreements. By allowing the transfer or distribution of risk, the risk is placed upon the party most capable of cheaply insuring the risk. Insurance plays a significant role in the indemnification process, because the promise to indemnify without a solvent indemnitor (or insurer) is worthless.

2.

Encourage compromise and settlement by reducing settlement discussions to bilateral negotiations, encouraging adequate levels of insurance, and allowing contracting parties to

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allocate the burden of defending claims. See Dalton v. Childress Serv. Corp., 189 W.Va. 428, 432 S.E.2d 98 (1993).

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Parties should note that the indemnification clause does not release the indemnitee from liability. Rather, it simply allows the indemnitee an economic avenue of recovery from the indemnitor. Also, the exculpatory nature of indemnity clauses has given rise to controversy and claims that the clauses are contrary to the common law principle that each party should be responsible for its own wrongful acts. In fact, forty-two states have anti-indemnity statutes that void indemnity provisions in construction contracts which attempt to indemnify the indemnitee for its sole negligence, and the courts actively enforce those statutes. Therefore, the real question in todays construction industry is what will the courts allow what is legally permissible when drafting indemnification provisions? The answer lies in contract interpretation and individual state law. D. Categories of Indemnification Clauses Determining the type or scope of the indemnification clause at issue is a major source of litigation. The party claiming indemnification has the burden of proof as to the type of indemnification clause. The three main types of indemnity provisionsbroad form, intermediate form, and limited formprovide a spectrum of risk-shifting options, as discussed below. 1. Broad Form. The indemnitor assumes any and all liability regardless of fault, even if that liability is due to the indemnitees sole negligence. It is important to distinguish between own negligence and sole negligence. When enforced, this type of clause serves to transfer the entire risk of loss away from the indemnitee and onto the indemnitor. The majority of states prohibit this clause by statute, or will simply not enforce it, because of its exculpatory nature to the indemnitee and onerous consequences to the indemnitor. Those states which permit the application of broad form indemnification clauses typically require that the parties express their intent to establish that level of indemnification by using clear and unequivocal language. Specifically, an agreement to indemnify a party for its own negligence must fulfill three conditions: (1) the parties must express their intent to exculpate in unequivocally clear language; (2) the agreement must result from an arms-length transaction between parties of equal bargaining power; and (3) the exculpation must not violate public policy. Arizona: Hauskins v. McGillicuddy, 175 Ariz. 42, 852 P.2d 1226 (Ariz. Ct. App. 1992), review denied, 177 Ariz. 279, 867 P.2d 849 (1994). An indemnity agreement will not be interpreted to indemnify against the indemnitees own negligence or wrongdoing unless that provision is expressly provided for within the indemnification agreement in clear and unambiguous terms. District of Columbia: W.M. Schlosser Co., Inc. v. Maryland Drywall Co., Inc., 673 A.2d 647 (D.C. 1996). An indemnity agreement will not be interpreted to indemnify against the indemnitees own negligence unless the court is firmly convinced that the interpretation reflects the intention of the parties. The court found the indemnity provision sufficiently comprehensive and clear and certain in its terms so as to include the indemnitees own negligence. Georgia: Federal Paper Bd. Co., Inc. v. Harbert-Yeargin, Inc., 53 F. Supp. 2d 1361 (N.D. Ga. 1999). The court held that an indemnification provision appeared to require indemnity for the indemnitees own negligence and thus, by itself, would violate Georgias anti-indemnity statute. However, Georgia courts are required to construe the indemnification provision together with the insurance provisions of the contract. Doing so, the court held that, by including a mandatory insurance provision, the parties intended to shift the risk of loss under the con-

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tract to insurance and did not intend, under the indemnification agreement, for [indemnitor] to bear the risk of loss for any accidents occurring due to the sole negligence of indemnitee. As a result, the court found the anti-indemnity statute inapplicable. Indiana: Hagerman Const. Corp. v. Long Elec. Co., 741 N.E.2d 390 (Ind. Ct. App. 2000). The court held that, under Indiana law, a party may contract to indemnify another for the others own negligence, but this may only be done if the party knowingly and willingly agrees to such indemnification. As a result, broad form indemnification clauses are strictly construed and will not be held to provide indemnification unless it is so stated in clear and unequivocal terms. Mississippi: Martin v. Sears, Roebuck & Co., 24 F.3d 765 (5th Cir. 1994). An indemnity agreement will not be interpreted to indemnify against the indemnitees own negligence in the absence of clear and unequivocal language. Any limiting language or specific references to the actions of the indemnitor can defeat a broad form agreement. Oklahoma: Wallace v. Sherwood Constr. Co., 877 P.2d 632 (Okla. Ct. App. 1994). Language in the contract obligating indemnification from all losses arising out of performance of the subcontract regardless of whether such loss is incident to or arises out of conditions or omissions permitted or acts performed by an indemnitee supported recovery of damages caused in part by the indemnitee even though indemnitor was completely without fault, because it satisfied the rule that intent to indemnify the indemnitees own negligence be unequivocally clear. Pennsylvania: Bethlehem Steel Corp. v. MATX, Inc., 703 A.2d 39 (Pa. Super. Ct. 1997). An indemnity agreement will not be interpreted to indemnify against the indemnitees own negligence in the absence of clear and unambiguous language. The court found the language clear and unambiguous and determined the intention of the parties and unequivocal terms in the indemnity provisions clearly indicated that the contractor would indemnify the owner for injuries arising from owners negligence. Tennessee: Olin Corp. v. Yeargin, Inc., 146 F.3d 398 (6th Cir. 1998). Although Tennessee law permits a party to be contractually indemnified for its own negligence, it must be clear and unambiguous from the language of the contract that this was the intention of the parties. The court found that the parties did not clearly and unequivocally express an intent that the contractor would indemnify the owner for the owners own negligence and the court would not impose its opinion as to the proper interpretation of the indemnity agreement. The court noted that express language such as including indemnitees acts of negligence would have been sufficient under Tennessee law. West Virginia: VanKirk v. Green Construction Co., 195 W. Va. 714, 466 S.E.2d 782 (1995), cert. denied, 518 U.S. 1028 (1996). A general contractors contract contained language expressing its agreement to hold the State Department of Highways harmless from all suits, actions, or claims of any character arising from its operations, and its bond contained even broader language covering losses from any cause whatsoever concerning construction of the road. This language was held sufficiently plain and unambiguous, and thus enforceable, and the contractor was obligated to indemnify the State Department of Highways for economic losses arising from the contractors failure to coordinate its work with other contractors.

2.

Intermediate Form. Here, the indemnitor assumes any and all liability except that which is due to the indemnitees sole negligence/fault. Intermediate form indemnity imposes liabil-

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ity on the indemnitor for its sole negligence as well as for the joint negligence of itself and the indemnitee, without regard to the indemnitees degree of fault, be it 1% or 99%. This type of clause excludes only actions where the indemnitee is solely at fault. Accordingly, some degree of fault must be attributable to the indemnitor. Kansas: Dixon v. Certainteed Corp., 944 F. Supp. 1501 (D. Kan. 1996). Where the indemnity provision required the contractor to indemnify the owner even for owners own acts of negligence, so long as the losses were not caused by the sole negligence of the owner, contractor was required to indemnify and defend the owner and the owners agent (the construction manager) in action by contractors employee injured as a result of owners and construction managers alleged negligence. Louisiana: Wolfe v. Canal Marine Repair, Inc., 660 So.2d 899 (La. Ct. App. 4th Cir. 1995). Where the indemnity provision concluded with a clause obligating the indemnitor to indemnify the indemnitee for damages arising out of indemnitors own fault, neglect, or breach of contractual obligation, this was held to constitute an intermediate, not broad form indemnification obligation. Thus, if the injury were caused at least in part by the indemnitor, the indemnitor would be liable on the claim, but would have no liability if totally without fault. Massachusetts: Erland Const. Co., Inc. v. Park Steel Corp., 671 N.E.2d 953 (Mass. App. Ct. 1996). Where the indemnity provision expressly bound the subcontractor to indemnify the owner and the contractor for injury resulting from the negligence of a sub-subcontractor, the court found that the subcontractor was required to indemnify the general contractor for damages arising from an injury to sub-subcontractors employee resulting from negligence of the sub-subcontractor (37% negligent) and the general contractor (63% negligent). Massachusetts: Collins v. Kiewit Const. Co., 667 N.E.2d 904 (Mass. App. Ct. 1996). Where the indemnity clause required the subcontractor to indemnify the general contractor on account of acts or omissions of any employee of subcontractor, the court found that the subcontractor was required to indemnify the general contractor who was 97% at fault for injury to subcontractors employee (who was the remaining 3% at fault). The court found the anti-indemnity statute inapplicable as the indivisible injury was caused by the concurrent negligence of the general contractor and the employee. Michigan: Sherman v. DeMaria Bldg. Co., 203 Mich. App. 593, 513 N.W.2d 187 (1994). Michigan statutory law prohibits construction contract indemnity clauses that insulate indemnitees from the consequences of their sole negligence. Michigan courts uphold indemnity agreements, however, and have held that intermediate form agreements do not violate the anti-indemnity statute. New Jersey: Leitao v. Damon G. Douglas Co., 693 A.2d 1209 (N.J. Super. Ct. A.D. 1997). Where the indemnity provision required the subcontractor to indemnify the contractor for all claims caused in whole or in part by a negligent act of the subcontractor or its employees, regardless of whether they were also caused in part by the contractor, the court found that the subcontractor was required to indemnify the contractor for damages arising from an injury to subcontractors employee resulting from negligence of the employee (49% negligent) and the contractor (51% negligent). New York: Malecki v. Wal-Mart Stores, Inc., 635 N.Y.S.2d 888 (N.Y. App. Div. 1995): An indemnification clause obligating the subcontractor to indemnify the general contractor for claims caused in whole or in part by any negligent act or

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omission of [subcontractor] or anyone directly or indirectly employed by [it] or anyone for whose acts [it] may be liable was not entirely invalid under New Yorks anti-indemnity statute, especially where an issue of fact was unresolved as to whether the indemnitors negligence caused the underlying loss. Illinois: Biedzycki v. Northeast Illinois Regional Commuter Ry. Corp., 1998 WL 150724, 1998 U.S. Dist. LEXIS 4001 (N.D. Ill. Mar. 27, 1998). Contractor sought to dismiss a third-party action by Metra based on indemnification. The indemnity clause at issue required the contractor to indemnify Metra from all loss, liability, cost and expense . . . on account of all claims . . . whether or not such claim is caused by or attributed to the condition of any premises owned or occupied by Metra. The court refused to find the clause void under the anti-indemnity statute, finding that because the clause did not explicitly indemnify Metra for its own negligence and because Metra was seeking indemnification for costs and judgments resulting from the contractors negligence, the indemnification clause was valid and Metra could maintain its third-party action against the contractor.

3.

Limited Form. The indemnitor assumes liability to the extent of its own negligence or fault, otherwise known as comparative fault. The limited form indemnity is thus a restatement of the common-law principle that one should be held liable for only those circumstances over which it exercises control. In other words, the clause reiterates the rights already available to a would-be indemnitee. California: Peter Culley & Assoc. v. Superior Court, 10 Cal. App. 4th 1484, 13 Cal. Rptr.2d 624 (1st Dist. 1992), modified, rehg denied, 11 Cal. App. 4th 1206E (1st Dist. 1992). Provisions purporting to hold a party harmless in any suit at law, rom all claims for damages to persons, and from any cause whatsoever, without expressly mentioning an indemnitees negligence, are considered limited form. New Jersey: Carvalho v. Toll Bros. & Developers, 278 N. J. Super. 451, 651 A.2d 492 (App. Div. 1995), cert. granted, 140 N.J. 326, 658 A.2d 726 (1995), and affd, remanded, 143 N.J. 565, 675 A.2d 209 (1996). An indemnity clause that stated indemnitee agreed to hold indemnitor harmless from any and all responsibility or damages arising out of the construction of the Work and against any judgmentsobtained with respect thereto was held to support a reading that only the indemnitees negligence or the indemnitors passive liability as property owner was also covered. New York: Narvaez v. 4518 Assoc., 672 N.Y.S.2d 859 (N.Y. App. Div. 1998). The court found that the indemnification clause in the parties contract was enforceable since it did not impose an obligation to indemnify for negligence other than that of the indemnitor and its agents. Pennsylvania: Sun Co., Inc. v. Brown & Root Braun, Inc., 1999 U.S. Dist. LEXIS 13453 (E.D. Pa. Sept. 2, 1999). The contractor had agreed to indemnify the owner for damages and injuries to the extent caused by or arising out of the negligent acts or omissions of [the contractor], its subcontractors, agents, servants or employees whether or not such actions or omissions occur jointly or concurrently with the negligence of the owner. The owner argued that the whether or not clause entitled the owner to indemnification for its own negligence in all cases where the contractor was itself negligent, without regard to the seemingly limiting phrase to the extent. The court, however, denied the owner indemnification for its own negligence, holding that the provision unambiguously provided that the contractor will be responsible for its and/or its subcontractors proportionate share of liability for an injury, regardless of [the owners] own negligence. There is, the court held, no basis in law or common sense for [the owners] position

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that the phrase whether or not alters the common sense and judicially determined meaning of to the extent to read to any extent.

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Utah: Ericksen v. Salt Lake City Corp., 858 P.2d 995 (Utah 1993). Where the indemnity provision only applied to claims arising out of acts by the contractor, its agents, subcontractors, materialmen or employees, the contractor was not required to indemnify the city for the city inspectors negligence which caused injury to the contractors employee while the employee was working on a city project. AIA A201 Indemnification Provision. Perhaps the best known and most widely used limited form indemnity provision is found in the AIA General Conditions, AIA Document A201. Article 3.18.1 of the current 1997 edition of AIA Document A201 provides: To the fullest extent permitted by law and to the extent claims, damages, losses or expenses are not covered by Project Management Liability insurance purchased by the Contractor in accordance with Paragraph 11.3, the Contractor shall indemnify and hold harmless the Owner, Architect, Architects consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) but only to the extent caused by negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 3.18. (Emphasis added). A201 clearly provides that indemnification applies only to the extent the claim is caused by the negligent acts or omissions of the contractor or a party for whom it is responsible. The fact that indemnification applies regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder indicates that the contractors indemnification responsibility applies even though the owners own negligence may be a contributing factor. While courts have not yet had the opportunity to interpret the 1997 edition, the following are examples of application of the 1987 edition of A201s indemnity provision which also uses the phrase but only to the extent: Michigan: MSI Constr. Managers, Inc. v. Corvo Iron Works, 208 Mich. App. 340, 527 N.W.2d 79 (1995). An injured worker brought an action for negligence against the construction manager. The construction manager in turn brought a third-party action against the subcontractor who supplied the steel beams involved in the accident, and claimed that AIA A201 Article 3.18.1 entitled it to full indemnification. The court stated that indemnity contracts should be construed to give effect to the parties intentions, and that the words to the extent caused in whole or in part obligated the subcontractor to indemnify the construction manager only to the extent that the award was attributable to its own negligence. Accord Brown v. Boyer Washington Boulevard Assocs., 856 P.2d 352 (Utah 1993). Missouri: Dillard v. Shaughnessy, Fickel & Scott, 884 S.W.2d 722 (Mo. App. 1994). Parties may provide for comparative negligence in an indemnity

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contract, and where the indemnification clause specifically and unambiguously stated that the general contractor would indemnify architects and engineers for that portion of damage caused by general contractor or its subcontractor, general contractor was required to indemnify architects and engineers. The court applied Kansas law in reaching its decision. Texas: Houston Lighting & Power Co. v. Atchison, Topeka & Santa Fe Railway Co., 890 S.W.2d 455 (Tex. 1994). Parties may provide for comparative negligence in an indemnity contract, but must expressly state their intent to do so in the agreement. See also Hagerman Const. Corp. v. Long Elec. Co., 741 N.E.2d 390 (Ind. Ct. App. 2000). The court interpreted an indemnification provision based on that in AIA Document A401, which is closely similar to the language used in AIA Document A201. Applying a two-step analysis to the A401-based indemnity clause to determine whether a subcontractor had knowingly and willingly agreed to indemnify the general contractor for its own negligence, the court determined that the clause clearly and unequivocally applies to negligence, but does not clearly and unequivocally apply to indemnification of the indemnitee by the indemnitor for the indemnitee own negligence.

E.

General Contract Law and the Interpretation of Indemnification Provisions When interpreting indemnification provisions, courts apply certain general principles of contract law. As a basic premise, courts will try to enforce the contract as written in order to give the parties the benefit of their bargain. As a result, parties must keep in mind the following general principles when negotiating and drafting indemnification provisions. 1. Courts will construe the plain language to determine the true intent of the parties. Connecticut: Fire Systems, Inc. v. Semac Elec., 1998 WL 376344, 1998 Consoc. Super. LEXIS 1818 (1998). The court read the indemnity provision between the contractor and subcontractor to clearly and unambiguously provide that the subcontractor agreed to indemnify the contractor for claims for injuries which were caused, wholly or partially, by a negligent act of the subcontractor without regard to whether the injury was caused in part by the contractors negligence. The provision as written was not a sole negligence provision and would not be construed as such. Massachusetts: Nguyen v. Lewis/Boyle, Inc., 899 F. Supp. 58 (D. R. I. 1995). Under Massachusetts law, a contract of indemnity is fairly and reasonably construed in order to ascertain the intention of the parties and to effectuate the purpose sought to be accomplished). Pennsylvania: Richardson v. John F. Kennedy Memorial Hosp., 838 F. Supp. 979 (E.D. Pa. 1993). C ourt held that express indemnity contracts, like any other contracts, are construed to effectuate the contracting parties intent as manifested from the contracts plain language and in light of the situation of the parties and the circumstances connected with the transaction.

2.

Courts will construe the agreement as a whole, considering all relevant provisions, e.g., hold-harmless and insurance provisions, and give terms their generally prevailing meaning. Illinois: Church v. General Motors Corp., 74 F.3d 795 (7th Cir. 1996). The owners contract with an agent hired to sell the owners heavy equipment obligated the agent to indemnify the owner for loss resulting from the agents activities

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or the activities of the agents contractors. The loss in question was caused by the contractor employed by the buyer of the equipment and the court would not expand the meaning of contractors to include the buyers contractors, thus the owner was left with no right to indemnification. Iowa: Campbell v. Mid-America Constr. Co., 567 N.W.2d 667 (Iowa Ct. App. 1997) (court noted that the inclusion of the subcontractors duty to obtain general liability insurance in the indemnification clause indicated the parties intent that the duty to indemnify would remain in effect only while the work was in progress). Minnesota: Van Vickle v. C.W. Scheurer and Sons, Inc., 556 N.W.2d 238 (Minn. Ct. App. 1996). Subcontractor agreed to indemnify the general contractor from liability for its own negligence and agreed to provide contractor with insurance coverage for all damages to all persons, whether employees or otherwise and in any manner connected to the work of the subcontract. The court held that while the indemnity agreement standing alone would not be enforced in Minnesota, the requirement for the subcontractor to provide specific insurance coverage for the benefit of others converted it into an enforceable agreement. Additionally, the failure of the subcontractor to acquire the insurance required under the subcontract made the subcontractor liable for not only the claim, but also for attorneys fees and costs paid by the general contractor to defend the original action, the indemnification action, the appeal and accrued interest.

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3.

Courts will allow the admission of parol evidence where the intent of the parties is unclear. Massachusetts: Nguyen v. Lewis/Boyle, Inc., 899 F. Supp. 58 (D. R. I. 1995). The court could not determine whether an indemnification provision covered an equipment lessors negligence occurring only during the lease term or whether it also covered its negligence for periods prior to the execution of the lease. The court refused to grant summary judgment to the indemnitee and held that evidence would have to be taken to establish the parties intent as to the scope of time subject to indemnification. Utah: Salt Lake City Corp. v. Kasler Corp., 842 F. Supp. 1380 (D. Utah 1994), amended on recon., 855 F. Supp. 1560 (D. Utah 1994). The court could not determine from the four corners of the agreement what the parties intended. Because the language was ambiguous, the court admitted parol evidence as to the intention of the parties.

4.

Courts will enforce the indemnity provision against the drafter of the agreement where ambiguity creates two or more reasonable constructions. Pennsylvania: Kiewit Eastern Co. v. L & R Constr. Co., 44 F.3d 1194 (3rd Cir. 1995). Where it was unclear whether or not an indemnification agreement extended to losses incurred by the managing party of a joint-venture indemnitee, the court held that because ambiguous indemnity contracts are to be construed strictly against the party asserting the contract, no duty to indemnify could be found and the managing party could not recover indemnity. Texas: Webb v. Lawson-Avila Constr. Co., 911 S.W.2d 457 (Tex. Ct. App. 1995), in which a steel erection crane overturned causing serious injury and fatality. The jury found the general contractor liable for gross negligence, and the general contractor sought indemnification from the subcontractor. The court held that the broad form language covered gross negligence since it was to be assumed that the term negligence showed the parties intent to provide indemnity for all shades of negligence.

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5.

Courts may look to the relative bargaining positions of the parties when enforcing an exculpatory clause. This factor may lead to inconsistent results within and between the states. However, in a commercial setting, the courts will not delve too deeply into the fine points of bargaining power.

F.

Rules of Strict Interpretation Applied Specifically to Indemnification Provisions Some states abide by the legal principle favoring freedom of contract between parties of equal bargaining position and will enforce any indemnity agreement if the intent is clearly stated; others wrestle with the inequities imposed on the public at large by the broad or even intermediate form of indemnity. As a result, courts apply some additional rules of interpretation to indemnification provisions. 1. Typically, courts strictly construe indemnification provisions to require that an intent to indemnify another against its own negligence must be expressed in clear and unequivocal terms. Connecticut: Fiorello v. Universal Builders Supply Corp., 1997 WL 781829, 1997 Consoc. Super. LEXIS 3254 (Dec. 8, 1997). The court found that, based on the language of the indemnification agreement drafted by the indemnitor, it had clearly intended to indemnify the indemnitee for all negligent acts. The court found that in its ordinary and natural meaning, the word all left no room for exceptions. As a result, the parties would be held to their bargain. Delaware: Precision Air, Inc. v. Standard Chlorine of Del., Inc., 654 A.2d 403 (Del. 1995). Although indemnity agreements are not against public policy, the general rule holds that unless expressly and clearly indicated in the contract language, an indemnitee cannot indemnify itself for its own negligence. Delaware: New Zealand Kiwifruit Mktg. Bd. v. City of Wilmington, 825 F. Supp. 1180 (D. Del. 1993). Unlike certain other contractual duties in construction, e.g., duty to schedule and coordinate the work or duty to cooperate, intent to indemnify must be expressed and will not be implied. The court found that, in view of the express indemnification clause in the contract running from only one party to the other, indemnification could not be implied to run in the other direction. District of Columbia: Grunley Const. Co. v. Conway Corp., 676 A.2d 477 (D.C. 1996). Where the indemnity clause required that the subcontractor indemnify and save harmless contractor and owner from any and all damage and personal injury, including death, arising out of or resulting from or in connection with the execution of the work, the court held that the indemnity provision, as a matter of law, indemnified the contractor for its own negligence. Illinois: Smith v. Lyles, 839 F. Supp. 18 (N.D. Ill. 1993). In an action arising out of the shooting of a minor by a security guard at a housing development, the housing authority cross-complained for indemnity against the independent security company which had contracted with the authority to provide security services. The contract between the authority and the security company required that the company indemnify the authority against any liability arising out of intentional or negligent acts or omissions of the company. Noting that [a]bsent clear and explicit language, an indemnity contract will not be construed to indemnify one against his or her own negligence, the court found that the indemnity provision did not manifest intent to provide indemnity for every act occasioned by the companys performance, but did provide indemnity for the authority for its own negligence where the alleged negligent acts or omissions were in hiring, supervising and training employees of the security company.

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Indiana: Hagerman Const. Corp. v. Long Elec. Co., 741 N.E.2d 390 (Ind. Ct. App. 2000). The court applied a two-step analysis to determine whether a subcontractor had knowingly and willingly agreed to indemnify the general contractor for its own negligence: (1) the indemnification clause must expressly state in clear and unequivocal terms that negligence is an area of application where the indemnitor has agreed to indemnify the indemnitee, and (2) in clear and unequivocal terms, the clause must state that it applies to indemnification of the indemnitee by the indemnitor for the indemnitees own negligence. Because it found that the indemnity provision met step (1), but not step (2), the court found the subcontractor was not obligated to indemnify the general contractor for its own negligence. Louisiana: Spell v. NL Industries, Inc., 618 So.2d 17 (La. Ct. App. 1993), cert. denied, 624 So.2d 1224 (La. 1993). Oil well operators employee brought a personal injury action against operator, subcontractor, and others, and the subcontractor filed a cross-claim alleging that the contract obligated the operator to defend and indemnify the subcontractor. The court found that the contract clearly obligated the operator to indemnify the subcontractor even though the subcontractor breached the insurance provisions of the subcontract by failing to have the operator named as an additional insured. Louisiana: McGoldrick v. Lou Ana Foods, Inc., 649 So.2d 455 (La. Ct. App. 3d Cir. 1994), where court stated that in contracts of indemnity intent to indemnify indemnitees own negligence can be taken from contract as a whole. Under Louisiana law, presumption is that parties do intend to indemnify indemnitees own negligence. Maine: International Paper Co. v. A&A Brochu, 899 F. Supp. 715 (D. Me. 1995). An indemnity provision expressly obligated the seller of lumber to indemnify the buyer for losses caused by the buyers own negligence. The court upheld the buyers right to indemnification from the seller in an action by sellers employee for injuries resulting from the buyers negligence since courts will honor clear reflections of mutual intent. Massachusetts: Urban Investment & Dev. Co. v. Turner Constr. Co., 35 Mass. App. Ct. 100, 616 N.E.2d 829 (1993). Negligence and breach of contract action was brought against the general contractor, electrical subcontractor, and engineer for damages resulting from an electrical fire at plaintiffs hotel. The subcontract obligated the electrical subcontractor to indemnify the general contractor for any claims made or asserted in connection with the subcontractors work. Noting that [i]ndemnity provisions are not read with any bias in favor of the indemnitor and against the indemnitee, the court held that the language of the indemnity provision was very broad and required a twofold obligation to indemnify the general contractor against any liability for judgments resulting from the electrical contractors work and to assume the cost, including legal fees, of defending the general contractor against any claim, successful or not, arising out of the electrical subcontractors work. Montana: Slater v. Central Plumbing & Heating Co., 275 Montgomery County Circuit Court. 266, 912 P.2d 780 (1996). The general contractor was held partially liable for failing to provide proper scaffolding which resulted in injury to the subcontractors employee. The general contractor sought contractual indemnity from the subcontractor, but the court held that state law imposed a nondelegable duty to provide fall protection on general contractors. Because indemnity provision did not specifically provide indemnity for liability under the state scaffolding law, no clear and unequivocal intent to indemnify against a partys own negligence was demonstrated, and the general contractor was not entitled to indemnity.

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New York: Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10 (2d Cir. 1993). Under New York law, indemnity and release provisions contained in agreements entered into in connection with the sale of a hazardous waste site were broad enough to require the buyer of the site to indemnify the seller for CERCLA liability, notwithstanding that the provisions predated the enactment of CERCLA. Court enforced purchasers agreement to indemnify seller in view of unambiguous contractual language. The court stated that this is a seemingly harsh result for a company that must pay for the cleanup of contamination that it apparently did not cause. However, we are unwilling to ignore the broad inclusive language of the agreements freely entered into by two sophisticated parties. Parties should be able to rely on the terms of an agreement arrived at after arduous negotiations. Pennsylvania: City of Pittsburgh v. American Asbestos Control Co., 157 Pa. Commission. 235, 629 A.2d 265 (1993). Employee of an asbestos removal company fell through a negligently maintained roof on city property. The city, pursuant to the contract, sought indemnification for the claims made by the injured employee, but the court held that the indemnity provision lacked the requisite express language of the parties intent to indemnify the city for its own negligence. The court stated that if the parties intended to include, within the scope of their indemnity agreement, a provision that covers losses due to the indemnitees own negligence, they must do so in clear and unequivocal language. No inference from words of general import can establish such indemnification. Texas: Tenneco Oil v. Gulsby Engineering, 846 S.W.2d 599 (Tex. Ct. App. 1993). Owner and contractor were found jointly liable for the unauthorized use of a patented design for gas separation in a newly constructed gas processing plant. In its suit against the contractor for indemnification, the court granted the owner summary judgment based upon finding the intermediate form indemnity provision in their contract unambiguous and susceptible to only one reasonable meaning. Texas: Man GHH Logistics GMBH v. Emscor, Inc., 858 S.W.2d 41 (Tex. Ct. App. 14th Dist. 1993). The express negligence rule requires that parties seeking to indemnify the indemnitee from the consequences of its own negligence must state that intent in specific terms, within the four corners of the contract. Utah: CIG Exploration, Inc. v. Hill, 824 F. Supp. 1532 (D. Utah 1993), affd, 83 F.3d 431 (10th Cir. 1996). Gas pipeline operator brought an action seeking reimbursement from royalty interest owners of that portion of the royalties attributable to overcharges reimbursed to customers. Under Utah law, the gas pipeline operator was not entitled to indemnification from the royalty interest owners pursuant to the indemnity provision, as the indemnity clause contained general language and did not expressly provide that the parties intended to indemnify the operator for its own wrongful conduct. Utah courts follow a rule of strict construction requiring that the intention to indemnify another party for its own wrongdoing be clearly and unequivocally expressed, and the presumption is against any such intention and it is not achieved by inference or implication from general language. Vermont: Hamelin v. Simpson Paper (Vermont) Co., 702 A.2d 86 (Vt. 1997). Where contractor agreed to assume risk of injury to employees connected with security services provided by contractor and indemnify and hold the landowner harmless from any and all loss, contractor would be required to defend and indemnify landowner against claims by contractors employee, even if his injuries were caused by the landowners own negligence. The court found that the contract explicitly contemplated such claims, the parties had an arms length business deal, and the indemnification clause did nothing more than allocate to the contractor the cost of purchasing insurance to cover the risk.

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2.

In conjunction with strict construction, courts often find that ambiguity on the issue of what constitutes indemnifying negligence results in a finding of no indemnification for the negligence. District of Columbia: Rivers & Bryan, Inc. v. HBE Corp., 628 A.2d 631 (D.C. 1993). Employee of a masonry subcontractor, Rivers & Bryan, was killed when he fell through a hole created by the roofing subcontractor which was an OSHA violation. HBE Corp. brought a third-party claim against Rivers & Bryan for indemnification. The indemnification clause in the subcontract had been modified with the words Subcontractor is not responsible for others who are not in conformance with OSHA. The court found that the modification rendered the indemnification provision ambiguous and held that where a party purports to have the right to indemnify for its own negligence, [and] the contract is ambiguous on the issue of indemnifying the negligence of the indemnitee, there is no indemnification for the indemnitees own negligence.

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However, it should be noted that clear and unequivocal does not necessarily mean express. Iowa: Herter v. Ringland-Johnson-Crowley Co., 492 N.W.2d 672 (Iowa 1992). When a construction worker was injured falling from a negligently secured ladder, the projects sheet metal contractor argued that the indemnification clause in its contract with the general contractor did not clearly and unequivocally impose an obligation to indemnify the general. The court disagreed, stating that a contract need not expressly relieve the indemnitee of its own negligence if the words of the agreement clearly import that intent.

G.

State Statutes Which Limit or Void Indemnification Clauses Again, parties must bear in mind that the vast majority of states have enacted statutes which limit or void contractual indemnity. The statutes are not based on any uniform law. Courts routinely enforce the terms of the anti-indemnity statutes and void indemnity provisions that are contrary to the applicable statutes. Forty-two states with anti-indemnity statutes disallow indemnity based on broad form indemnity, and many of these same states also limit intermediate form indemnity. As a result, a party that does not take the relevant states anti-indemnity statute into consideration when negotiating and drafting its indemnity provision, will likely be left with no indemnity. Alaska: City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d 1271 (Alaska 1994). Under Alaska law, the statute that prohibits indemnity provisions that insure against indemnitees own negligence also prohibits clauses which purport merely to limit a partys liability to a sum certain. Illinois: In both Tanns v. Ben A. Borenstein and Co., 688 N.E.2d 667 (Ill. App. 1997), and Turner/Ozanne v. Hyman Power, February 11, 2000 Proposal F.3d 1312 (7th Cir. 1997), the courts confirmed that, in Illinois, a contractors agreement to indemnify an owner for the owners own negligence, as well as a subcontractors agreement to indemnify a contractor for the contractors own negligence, are void under the Illinois Construction Contract Indemnification for Negligence Act, which prohibits in a contract or agreement, either public or private, any covenant, promise or agreement to indemnify another person from that persons own negligence. Illinois: Field v. Norfolk & W. Ry. Co., 1998 WL 372090, 1998 U.S. Dist. LEXIS 19261 (N.D. Ill. 1998). The court found that the indemnification clause in a service agreement between the railroad and an electrical contractor violated the Illinois Construction Contract

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Indemnification for Negligence Act because it required the contractor to indemnify the railroad for its own negligence. Moreover, the court found that the savings clause portion of the indemnification provision, which required the contractor to indemnify the railroad for damages attributable to its own fault, was not indemnity but rather contribution, and thus violated the Illinois Contribution Act. Massachusetts: In both Sciaba Constr. Corp. v. Frank Bean, Inc., 681 N.E.2d 288, 43 Mass. App. Ct. 66 (1997) and Bjorkman v. Suffolk Constr. Co., 42 Mass. App. Ct. 591, 679 N.E.2d 559 (1997), the courts found that the indemnity clauses in question were void under the state statute which provided that indemnity clauses in contracts for construction were void if they required a subcontractor to indemnify any party for an injury that the subcontractor did not cause. Minnesota: Seifert v. Regents of the Univ. of Minn., 505 N.W.2d 83 (Minn. Ct. App. 1993), review denied, 1993 Minn. LEXIS 758 (1993), where the court found that a Minnesota statute which rendered indemnification agreements in building and construction contracts purporting to indemnify for the negligence of a entity other than the promisor, its agents, employees or delegates unenforceable did not apply when the indemnitors obligations are covered by insurance. Accord Katzner v. Kelleher Constr., 545 N.W.2d 378 (Minn. 1996). New York: Itri Brick & Concrete Corp. v. Aetna Cas. & Sur. Co., 89 N.Y.2d 786, 658 N.Y.S.2d 903, 680 N.E.2d 1200 (1997). Court held that a broad subcontract indemnification clause which could be construed to hold the subcontractor for the general contractors negligent acts was unenforceable because it violated General Obligation Law 5-322.1. West Virginia: Dalton v. Childress Serv. Corp., 189 W. Va. 428, 432 S.E.2d 98 (1993). Court interpreted a West Virginia statute to void a broad indemnity agreement only where (1) the indemnitee is found by the trier of fact to be solely (100 percent) negligent in causing the accident and (2) it cannot be inferred from the contract that there was a proper agreement to purchase insurance for the benefit of all concerned. In this case, the court found that the insurance provision of the contract made it clear that the indemnity provision was really only an agreement to purchase insurance.

H.

Other Relevant Differences Between States In negotiating and drafting an indemnity provision, it is important to identify and be cautious regarding differences in state law. Contractors and insurance professionals need to be aware of state-to-state differences which affect the interpretation of indemnification clauses. In addition to the differences listed above, these areas of concern include the following: 1. Differences in the statute of limitations which apply to both the underlying claim and the claim on the indemnity clause. At common law, actions for indemnification accrue when the indemnitee actually pays the liability. However, some states have statutorily modified the common law rule. For example, in Colorado, the statute of limitations is two years and the cause of action accrues when the underlying claim for liability accrues, i.e., when plaintiff discovers or should have discovered the construction site defects which ultimately caused the injury. Colorado: Maryland Cas. Co. v. Formwork Services, Inc., 812 F. Supp. 1127 (D. Colo. 1993). An insurance company sought reimbursement of the judgment paid to the widow of a fatally injured construction worker. The widow filed her action in 1985. Although judgment in her favor was not rendered until 1990, the insurance companys 1991 claim for indemnification was barred because, under the statute, more than two years had passed since the cause of action accrued.

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Illinois: Zielinski v. Chris W. Knapp & Son, Inc., 277 Ill. App. 3d 735, 214 Ill. Dec. 340, 660 N.E.2d 1289 (3d Dist. 1995), app. denied, 167 Ill. 2d 571, 667 N.E.2d 1063 (1996). The owners sued the general contractor for defective bricks, and the general contractor sought indemnity from the masonry subcontractor and brick supplier. The court held that the action against the subcontractor could proceed under the limitations period relating to construction-related claims, but that the action against the supplier was time barred under the Uniform Commercial Codes sale of goods statute of limitations. Kentucky: Hall Contracting Corp. v. Smith, 1998 WL 150783, 1998 Ky. App. LEXIS 29 (Ky. Ct. App. 1998), affd, 27 S.W.3d 775 (Ky. 2000). Police officers injured by the explosion of a homemade bomb brought an action against a contractor alleging that the contractor was negligent in storing and maintaining explosive materials at construction site. The contractor brought a third-party indemnity complaint against the individuals who allegedly stole the explosives and made the bomb, but the trial court dismissed it. On appeal, the Court of Appeals held that non-contractual indemnity against tortfeasors remained viable in Kentucky after the states adoption of a comparative fault system and that the statute of limitations on an indemnity claim does not begin to run until some payment is made to the plaintiff by the party claiming indemnity.

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2.

Differences in the statute of repose which may affect ones duty to indemnify for tort claims versus contract claims. Iowa: Krull v. Thermogas Co., 522 N.W.2d 607 (Iowa 1994), where the expiration of the statute of repose for bringing a defective improvements claim also barred the dependent indemnity action.

3.

Duty to provide a safe place to work. State laws requiring owners to provide a safe place to work may broaden the range of claims and potential liability of the owners indemnitor. Alabama: Royal Ins. Co. of Amer. v. R.E. Grills Const. Co., Inc., 242 F.3d 1035 (11th Cir. 2001). The court determined that a highway contractor had a nondelegable duty under Alabama law, and specific terms in its contract with the state, to insure a safe roadway, but failed to perform that duty, resulting in the underlying claim for which a subcontractor sought indemnity. However, the contractors duty was not stated specifically in its indemnity agreement with the subcontractor. As a result, the Eleventh Circuit certified to the Alabama Supreme Court the following question for determination under Alabama law: Must an indemnity agreement specifically state that an indemnitor will indemnify the indemnitee for a nondelegable duty to which the indemnitee is subject under state law to require indemnification for the failure to execute such nondelegable duty, which results in the underlying cause of action for which indemnification is sought? New York: Baker v. Barrons Educ. Serv. Corp., 670 N.Y.S.2d 587 (N.Y. App. Div. 1998). Subcontractor was required to indemnify owner for claims raised by the subcontractors employee pursuant to a New York statute requiring owner to provide a safe place to work and proper safety protection, in light of the fact that subcontractor supervised the work and failed to provide safety devices as required by the labor law and that the owner had no supervisory control over the work. New York: Buccini v. 1568 Broadway Associates, 673 N.Y.S.2d 398 (N.Y. App. Div. 1998). Contractor was required to indemnify owner and construction manager for claims raised by the contractors employee pursuant to a New York statute requiring owner to provide a safe place to work and proper safety protec-

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tion. The court found that, where the deposition testimony showed that the contractors negligence caused the employees injuries, the owner was entitled to indemnification. Additionally, because the construction managers duties were limited to observing the work, it did not become liable to the contractors employee. The court held that both common law rules and the clear contractual language allocating liability in the same manner as those rules, entitled both the owner and the construction manager to summary judgment on the issue of indemnification. But see Hoffman Const. Co. of Alaska v. U.S. Fabrication & Erection, Inc., 22 P.3d 464 (Alaska 2000)(liability for non-delegable duties can be shifted to another party through an indemnity clause).

4.

In determining common law or equitable indemnification claims, states may differ regarding what they consider to be passively negligent conduct and therefore eligible for relief, or actively negligent conduct and thus ineligible for relief. Arizona: Cella Barr Assocs., Inc. v. Cohen, 177 Ariz. 480, 868 P.2d 1063 (Ct. App. 1994). Environmental auditor failed to conduct a thorough examination under its contract. Following settlement for professional malpractice, the environmental auditor brought an action for indemnification. The court found that an environmental auditors failure to discover environmental obstacles when conducting an environmental audit did not constitute passive negligence and therefore, it was not entitled to indemnification. New York: Aragon v. 233 West 21st St., Inc., 201 A.D.2d 353, 607 N.Y.S.2d 642 (1st Dept. 1994). Subcontractors employee fell to his death when scaffolding collapsed. The court found that while the owner dispatched persons to observe the progress and method of brick restoration work on the project, this did not render the owner actively negligent so as to bar its indemnification claim against the general contractor who had the authority to direct, supervise and control the work.

5.

Indemnity is distinct from doctrine of contribution. Missouri: Irwin v. Hoover Treated Wood Prods., Inc., 906 F. Supp. 530 (E. D. Mo. 1995). Under Missouri law, for example, indemnity is either contractuallybased or is implied. Contribution, on the other hand, presupposes actionable negligence and joint liability to the plaintiff by each tortfeasor, and the contributing tortfeasor is only liable for amounts corresponding to his proportional share of the fault.

6.

Federal statutes, such as the Longshoremans Act, CERCLA, FELA, or Wetlands, may apply to a particular project and could have an effect on interpretation of the indemnification clause. a. Under CERCLA, private parties are permitted to allocate liability among themselves as they see fit, but will each remain fully liable to the government regardless of indemnification agreements. See United States v. Hardage, 985 F.2d 1427 (10th Cir. 1993); Scott Galvanizing, Inc. v. Northwest Enviro Services, Inc., 120 Wash. 2d 573, 844 P.2d 428 (1993); Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10 (2nd Cir. 1993); Village of Fox River Grove v. Grayhill, Inc., 806 F. Supp. 785 (N.D. Ill. 1992). Georgia: In Re Diamond Mfg. Co., 164 B.R. 189 (S.D. Ga. 1994). An agreement that required a party to observe and comply with all present or

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future laws was broad enough to uphold the obligation to indemnify for CERCLA liability where the agreement was drafted prior to CERCLAs enactment. Maine: Allwaste Environmental Servs. v. Pastore, 911 F. Supp. 29 (D. Me. 1996). A purchaser of corporate assets was assessed liability for a Superfund site under CERCLA, and in order to avoid potential joint and several liability for cleanup costs, entered into a settlement agreement with the U.S. Government. It then sought contractual indemnification from the seller, who defended on the ground that recent court decisions indicated the purchaser had no CERCLA liability and therefore settlement was voluntary and discharged the indemnitor. The court held that because the legal question was unsettled at the time of the settlement and the seller declined the purchasers tender of settlement approval and early demands for indemnification, the seller was obligated to indemnify the purchaser for the settlement amounts. Massachusetts: Polaroid Corp. v. Rollins Environmental Servs., Inc., 416 Mass. 684, 624 N.E.2d 959 (1993). The court held that, where the parties were aware of changing regulations, a broadly-phrased indemnity clause entered into prior to CERCLAs enactment is sufficient to encompass CERCLA. Tennessee: Olin Corp. v. Yeargin Inc., 146 F.3d 398 (6th Cir. 1998). The court found that, although there was no specific reference in the parties indemnification agreement to environmental liability, the language was sufficiently broad to encompass the environmental liabilities at issue. Thus, the court found that the contractor was required to indemnify the owner for the costs, fines and penalties that the owner incurred in connection with its violations of federal and state environmental statutes, including CERCLA, the Clean Air Act, the National Emission Standards for Hazardous Air Pollutants, and OSHA.

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b.

Similarly, under FELA, a railroads indemnity claim against a power company for violation of the Safety Appliance Act (SAYBROOKE) was defeated because railroads are strictly liable for SAYBROOKE violations under the terms set forth in FELA. Houston Lighting & Power Co. v. Atchison, Topeka & Santa Fe Railway Co., 890 S.W.2d 455 (Tex. 1994). In another case, a railroads indemnity claim against a contractor which sprayed its employee with defoliants was governed under FELA rather than the common law. See Knowles v. Burlington Northern Railroad Co., 18 Kan. App. 2d 608, 856 P.2d 1352 (1993), rev. denied, 254 Kan. 1007 (1993).

I.

Potential Defenses to Indemnity 1. Defense that indemnification clause is void and against public policy. a. Response: Incorporate Savings Clause California: Myers Bldg. Ind. Ltd. v. Interface Technology, 13 Cal. App. 4th 949, 17 Cal. Rptr.2d 242 (2d Dist. 1993), review denied, 1993 Cal. LEXIS 2945 (2d Dist. 1993). In light of anti-indemnity statutes and strict construction of indemnification provisions, parties must be sure to include a savings clause, e.g. To the fullest extent permitted by law... Transamerica Ins. Co. v. Avenell, 66 F.3d 715 (5th Cir. 1995). The subcontractors surety contract obligated the subcontractors principals to

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indemnify the surety for bond payments in their personal capacity. The surety paid on a bond claim and then sought indemnification, but the principals claimed that the waiver of homestead exemptions made the indemnification provision illegal and thus unenforceable. The court held that the savings clause severed the illegal provisions from the remainder of the contact, and that the principals had to indemnify the surety for all amounts less the value of their homestead. b. Operation of Other State Statutes New York: Blake Elec. Contracting Co. v. Paschall, Inc., 222 A.D.2d 264, 635 N.Y.S.2d 205 (1st Dept. 1995). An unlicensed contractor who was prohibited from maintaining an action for payment against the owner under the state licensing statute was also prohibited from seeking indemnity from the owner for payment to unpaid subcontractors since the law does not permit by indirection that which is directly prohibited.

2.

Defense that indemnification doesnt extend to indemnitors ultra-hazardous activities/ strict liability. Burgan v. City of Pittsburgh, 115 Pa. Commw. 566, 542 A.2d 583 (1988), app. denied, 521 Pa. 613, 557 A.2d 344 (1989) (blasting; toxic waste disposal; asbestos removal).

3.

Defense that indemnification is limited to contractually-required insurance coverage. a. b. An indemnification clause can be drafted this way if the parties are careful. The defense is available if the indemnity provision expresses a clear intention to limit indemnification liability to the stated limits of insurance provision. For example, there is no duty to indemnify or defend for defamation where the insurance policy contains a professional liability exclusion clause which excludes coverage of intentional torts. See Hurst-Rosche Engineers v. Commercial Union Ins. Co., 51 F.3d 1336 (7th Cir. 1995). A contract requirement for insurance is not indemnification. Croall v. Massachusetts Bay Transp. Authority, 26 Mass. App. Ct. 957, 526 N.E.2d 1320 (1988). But see Kerr v. Smith Petroleum Co., 896 F. Supp. 608, summ. jmt. granted, 909 F. Supp. 421 (E.D. La. 1995). A contract contained provisions providing for indemnity and adding the indemnitee as an additional insured to certain insurance policies. The court held that even if the indemnity provision violated a Texas anti-indemnity statute, the indemnitee was nonetheless entitled to protection as an additional insured under the policies the indemnitor was obligated to take out under the contract. See also Heat & Power Corp. v. Air Products & Chemical, Inc., 320 Md. 584, 578 A.2d 1202 (1990).

c.

4.

Defense that final payment waives right to indemnification. Kansas: Southwest Nat. Bank v. Simpson & Son, Inc., 14 Kan. App. 2d 763, 799 P.2d 512 (1990). Noting that the waiver of claims portion of the parties contract was clearly not intended to bar indemnification suits, the court disregarded the general contractors defense in the project owners indemnification suit against the general contractor to cover a personal injury claim filed by an injured worker.

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5.

Defense that mutual release and settlement agreement may bar a claim for indemnification.

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Kansas: A.S.I., Inc. v. Sanders, 835 F. Supp. 1349 (D. Kan. 1993), summ. jmt. denied, 1996 U.S. Dist. LEXIS 2484 (D. Kan. 1996). Where settlement agreement released previous owners from all claims, causes of action, and liabilities of any nature now or hereafter arising, the court found that it barred subsequent claims for indemnity.

III. WHAT INDEMNIFICATION IS NOT


A. Duty to Defend 1. Parties should understand that there is a difference between the duty to indemnify and the duty to defend. The duty to indemnify usually arises only when the plaintiff in an underlying action prevails upon facts which fall within coverage. The duty to defend, however, generally exists immediately upon the commencement of such action, regardless of whether the insured is ultimately found liable. Alaska: Hoffman Const. Co. of Alaska v. U.S. Fabrication & Erection, Inc., 22 P.3d 464 (Alaska 2000). The court held that, while the duty to indemnify is not triggered until the indemnitee is liable for damages, the duty to defend is triggered merely by claims of injury that fall within the scope of the indemnity clause, requiring a defense for the indemnitee and requiring the indemnitor to provide that defense. Because the court found that claims by employees of the subcontractor fell within the scope of both the owner/contractor indemnity agreement and the contractor/subcontractor indemnity agreement, the contractor and subcontractor owed a duty to defend to the owner and contractor, respectively.

2.

The tender of defense is a condition precedent to the creation of an obligation to indemnify. See Seifert v. Regents of the University of Minnesota, 505 N.W.2d 83 (Minn. Ct. App. 1993), review denied, 1993 Minn. LEXIS 758 (1993). Construction contractor was not required to indemnify the project owner on a claim brought by the contractors employee until there was a formal tender of defense by the project owner. If the indemnity agreement also covers defense costs, the duty to defend arises when the facts at the time defense is tendered indicate that liability will eventually fall upon the indemnitor thereby placing him under duty to defend the indemnitee. The nature of the underlying allegations in the complaint against the indemnitee are irrelevant to the indemnitors obligation to pay. Minnesota: Diebold, Inc. v. Roadway Express, Inc., 538 N.W.2d 150 (Minn. Ct. App. 1995), where an indemnitee who failed to tender defense to the indemnitor until three and a half weeks before trial was held to have waived entitlement to attorneys fees reimbursement. Missouri: Burlington Northern R.R. Co. v. Chicago & Northwestern Transp. Co., 851 S.W.2d 28 (Mo. Ct. App.1993). Where one railroad company agreed to defend [the other] from and against any and all claims, loss, costs, suits or damages arising out of injuries..., the court found the contract to indemnify for both liability and loss. Accordingly, the indemnifying railroad was required to pay both the settlement amount and legal costs of the other companys defense.

3.

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4.

The duty to defend is broader than the duty to indemnify. An insurer will be required to defend an action unless it can prove an exclusion to coverage. Examples of the application of these principles: New York: Petito v. Beaver Concrete Breaking Co., 161 Misc. 2d 363, 613 N.Y.S.2d 523 (Civ. Ct. 1994). The court held that an insurer must defend the entire claim against the insured, including those claims which it does not have the duty to indemnify, unless the insurer can show that there is absolutely no basis for any obligation to indemnify. New York: Monteleone v. Crow Const. Co., 673 N.Y.S.2d 408 (1st Dept. 1998). An insurer bears the burden of demonstrating that a policy exclusion defeats an insureds claim by establishing that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. The court found that language in the policy was clear and unambiguous and unmistakably excluded coverage to the employer for employees bodily injury claims. As a result, the insurer was not obligated to defend or indemnify subcontractor under its policy. Washington: Knipschield v. C-J Recreation, Inc., 74 Wash. App. 212, 872 P.2d 1102 (1994), rev. denied, 124 Wash. 2d 1027, 883 P.2d 326 (1994). Where an agreement contained reciprocal clauses for defense and indemnity, the court held that construing the agreement as a whole, the indemnitor was obligated to provide a defense only against claims arising out of the possible negligence of the indemnitor, and the indemnitee was required to defend itself against claims arising out of its own negligence.

5.

Courts generally do not find an affirmative duty to defend in language indemnify and hold harmless. Timely notice of the duty to defend must be given to the indemnitor in order to hold him liable. New York: Holmes v. Morgan Guar. and Trust Co. of New York, 636 N.Y.S.2d 778 (N.Y. App. Div. 1996). Owner and general contractor who were additional insureds under subcontractors liability policy sought declaration that insurer was obligated to defend and indemnify them against underlying personal injury action brought by subcontractors employee. The court found that a ten-month delay by owner and general contractor in providing notice to insurer of accident that caused injuries was not reasonable and violated the policy condition that notice be given as soon as practicable, thus eliminating any duty of insurer to defend them against underlying action. New York: U.S. Underwriters Ins. Co. v. Held Bros., Inc., 1998 WL 355425, 1998 U.S. Dist. LEXIS 9694 (S.D.N.Y. Jun. 29, 1998). Insurer claimed no duty to defend or indemnify the general contractor because its claims arose from operations performed by an independent contractor and because the work performed did not fall within classification limitations set forth in the policy. The court held that, while the exclusion advanced by the insurer was applicable and the insurer could have excluded both its liability and duty to defend, New York statutes require timely notice of disclaimer, with which the insurer did not comply. The court found that the more than three month delay was unreasonable as a matter of law and held the insurer obligated to defend and indemnify the general contractor in the underlying action. West Virginia: Valloric v. Dravo Corp., 178 W. Va. 14, 357 S.E.2d 207 (1987). West Virginia court held that to recover on indemnity claim, indemnitee must show that indemnitor had: (a) actual notice of underlying claim, (b) an opportunity to defend, and (c) a right to participate in settlement negotiations.

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Wisconsin: Wisconsin Natural Gas Co. v. Gabes Const. Co., Inc., 220 Wisc. 2d 14, 582 N.W.2d 118 (Wisc. Ct. App. 1998). The court entered judgment for the indemnitor when it found that the indemnitee never put the indemnitor on notice of a coverage issue and, in fact, told the indemnitor that the parties indemnity agreement was not involved. The court found that the indemnitee could not, after entering into a settlement, invoke the indemnity clause because the indemnitee had duties of notice and good faith which it breached when it lulled the contractor into a false sense of security and prevented it from mitigating its liability.

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B.

Insurance Although risk transfer provisions have become a frequently-used risk management tool, an indemnification agreement does not absolve the liable party from its legal obligation to the injured third-party. Rather, it simply provides that party with an economic avenue of recovery from the indemnitor. To reduce the possibility that an indemnitor will be unable to respond to its contractual obligation, parties often require liability insurance to cover the liabilities transferred in indemnification clauses. Accordingly, insurance and insurability are key factors in the risk management process. Typically, in conjunction with indemnification clauses, construction contracts include provisions requiring the contractor or subcontractor to name the indemnitee as an additional insured on its CGL policy or to obtain general liability insurance coverage and endorsements with specific insurance coverage for the benefit of others. Thus the contractor or subcontractor is able to pass its assumed risks on to the insurance company without itself becoming an insurer.

C.

Subrogation Normally, an insurance company which pays for losses incurred by its insured has a derivative right of subrogation against the party responsible for the damage or loss. However, in an effort to limit potential disputes among participants on a construction project, contracting parties often waive their subrogation rights in conjunction with specified insurance requirements, almost completely eliminating the insurance companys potential to be reimbursed. 1. Waiver of Subrogation a. Content A typical waiver of subrogation clause reads in pertinent part: Owner and contractor waive all claims against each other and against all subcontractors to the extent covered by insurance obtained pursuant to the contract. b. Function 1.) This type of waiver operates to shift the ultimate risk of loss to one contracting party, who in turn shifts it to the insurance company, in exchange for valuable consideration. Thus, parties are protected from loss by bringing all property damage under one builders property insurance policy which provides blanket coverage. Illinois: Atlantic Mut. Ins. Co. v. Metron Eng. & Constr. Co., 83 F.3d 897 (7th Cir. 1996). A contractor hired to perform rehabilitative work on a building executed AIA Document A101/CM (1980 Ed.) with the owner. The building was damaged in a fire allegedly caused by the contractors negligence. The Court of Appeals held that the contract failed to unambiguously incorporate by reference the waiver of subrogation clause contained in the AIA general conditions because the gen-

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eral conditions (AIA Document A201/CM) were not listed as an incorporated document or otherwise attached/endorsed by the parties. Accordingly, the contract was deemed to be ambiguous as to indemnification, and the case was remanded for additional evidence as to the parties actual intent. Puerto Rico: Richmond Steel, Inc. v. Legal & Gen. Assurance Society Ltd., 821 F. Supp. 793 (D. P.R. 1993). The purpose of a waiver of subrogation clause in a construction contract is to avoid disruptions and disputes between the parties working on a project. The clause is also meant to require one party to the contract to provide property insurance for all parties. Thus, subrogation is intended to allow the insurer to affix responsibility for loss on the party who caused it.

2.)

The insurance company has no right to proceed against the contractor or subcontractor who may have actually caused the property loss; accordingly, derivative claims by insurance companies are reduced. A waiver of subrogation is not inconsistent with an indemnification clause. California: Davlar Corp. v. Superior Court, 53 Cal. App. 4th 1121, 62 Cal. Rptr. 2d 199 (2d Dist. 1997). The court concluded that the clauses serve different purposes and are, therefore, not in conflict. It explained that a waiver of subrogation clause applies to claims that are covered by insurance, whereas indemnification clauses require one party to reimburse another for a loss or damage incurred. New York: Trump-Equitable Fifth Ave. Co. v. H.R.H. Constr. Corp., 106 A.D.2d 242, 485 N.Y.S.2d 65 (1st Dept. 1985), affd, 66 N.Y.2d 779, 497 N.Y.S.2d 369, 488 N.E.2d 115 (1985). In precluding the owners subrogation suit against the general contractor and subcontractor, the court stated, Inasmuch as the owner has been fully recompensed for its loss, the indemnification provision is inapplicable and the waiver of subrogation clause governs.

3.)

4.)

Waivers of subrogation are not subject to public policy statutes barring exculpatory provisions. Arizona: United States Fidelity & Guar. Co. v. Farrar's Plumbing & Heating Co., 158 Ariz. 354, 762 P.2d 641 (Ct. App. 1988). In affirming the subcontractors summary judgment award against the owners insurer in a subrogation suit, the appellate court stated, The language of the [construction contract] clauses could not be clearer that fire insurance for the project was to be procured by the owner and that all parties to the construction were to look only to the insurance to protect themselves from fire loss.

c.

Caveats 1.) Where waiver is not so broad as the above standard, subcontractors may not be protected by waiver in the owner/general contract. Missouri: Automobile Ins. Co. v. United H.R.B. Gen. Contractors, Inc., 876 S.W.2d 791 (Mo. Ct. App. 1994). Where duration of the waiver of subrogation extended only until final payment for the project, con-

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tractors were not protected from insurers subrogation action arising out of a fire that occurred after the date final payment occurred.

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Washington: Touchet Valley Grain Growers, Inc. v. Opp & Seibold Gen. Constr., Inc., 119 Wash. 2d 334, 831 P.2d 724 (1992). Negotiated subrogation waiver in prime contract protected general contractor and its surety from liability for structural failure of grain storage building to the extent owners insurance covered the loss. The subcontractor who designed the building and supplied the components was not party to or beneficiary of the owner/contractor agreement (unlike provision in the standard AIA waiver) and was therefore not protected.

2.)

Where a contractor or subcontractor agrees to indemnify the owner or general contractor, if the parties have waived the right of subrogation, that indemnification extends only to the scope of the liability insurance, and not to property damage. Otherwise, the waiver of subrogation provision would have no meaning. Important to recognize the distinction between property insurance and liability insurance. New York: Rosato v. Karl Koch Erecting Co., Inc., 865 F. Supp. 104 (E.D.N.Y. 1994). Under the New York antisubrogation rule, an insurer has no right of subrogation against its insured for the very risks insured against. This rule, however, did not prevent an insurance company from seeking indemnification from the subcontractor-insured where insurance company was subrogated to the rights of a general contractor who was additional insured under the subcontractors policy. The anti-subrogation rule did not apply because the risks of the general contractor as additional insured were not the same risks as the subcontractors general policy risks.

d.

Examples Arizona: Fire Ins. Exchange v. Thunderbird Masonry, Inc., 177 Ariz. 365, 868 P.2d 948 (Ct. App. 1993). A construction lenders hazard insurer could not subrogate against a subcontractor where the developer executed subrogation waivers with the general contractor and subcontractors. The court held that the lender stepped into the developers shoes, and that the waivers further bound the insurer because the insurance policy recognized the waivers validity. California: Herrick Corp. v. Canadian Ins. Co., 29 Cal. App. 4th 753, 34 Cal. Rptr.2d 844 (1994), modified rehg denied, 30 Cal. App. 4th 93SB (4th Dist. 1994), rev. denied, 1995 Cal. LEXIS 259 (1995). Because a liability insurer elected not to indemnify the general contractor, it lost its subrogation rights against the parties responsible for the underlying tort. The insurer eventually paid a claim to the general contractor, but it did so only on its insured subcontractors behalf, per the subcontract. Thus, no subrogation rights through the general contractor arose. Georgia: Macon-Bibb County Indus. Auth. v. Nord Bitumi, U.S., Inc., 77 F.3d 417 (11th Cir. 1996). An insurer could not subrogate the lessors claim against the lessee for fire losses allegedly due to the lessees negligence notwithstanding the lessees contractual duty to indemnify the lessor for such loss. The lease obligated the lessor and the lessee to insure against the same type of loss, and under Georgia law, the mutual obligation to insure against the same risk is construed as a waiver of subrogation.

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Illinois: Village of Rosemont v. Lentin Lumber Co., 144 Ill. App. 3d 651, 494 N.E.2d 592 (1st Dist. 1986). Waiver of subrogation provision precluded owners suit against general and subcontractors for collapse of arena roof. Maine: Willis Realty Assocs. v. Cimino Constr. Co., 623 A.2d 1287 (Me. 1993). Building owner and tenant filed a subrogation action against the contractor for recovery of damages resulting from the collapse of an existing wall during the construction of a building addition. The court found that the plain language of the contract between the contractor and the owner waived subrogation recovery for damages to the extent that the damages were covered by insurance, and thus, the owner could not recover damages from the contractor for the collapse of the back wall of the existing building. However, since the tenant was not a party to the construction contract, the waiver did not bar recovery from the contractor for damages incurred by the tenant even though the insurer had paid losses incurred by the tenant. Missouri: Automobile Ins. Co. v. United H.R.B. General Contractors, Inc., 876 S.W.2d 791 (Mo. Ct. App. 1994). Insurer brought a subrogation action against the contractor for property damage resulting from a fire. The court held that the construction contract did not create a waiver of subrogation that extended after completion of the project and final payment under the contract. Although the contract was ambiguous as to the duration of the waiver, it appeared that once final payment was made, the contractor retained no further interest in the project and the waiver of subrogation was rendered inapplicable. Puerto Rico: Richmond Steel, Inc. v. Legal & Gen. Assurance Society Ltd., 821 F. Supp. 793 (D. P.R. 1993). Subcontractor brought a claim for declaratory relief and monetary damages against the general contractor and its insurer under the builders risk policy. The insurer asserted a counterclaim, as subrogee to the general contractor, seeking to recover from the subcontractor the amount which the insurer paid to the general contractor. The court held that where the general contractor waived its rights against the subcontractor to the extent that the general contractors losses were covered by insurance, the insurer of the general contractor could not bring a subrogation claim against the subcontractor. Virginia: Blue Cross v. McDevitt & Street Co., 234 Va. 191, 360 S.E.2d 825 (1987). Subrogation waiver barred owner from pursuing contractor and architect for damages incurred due to a burst water pipe.

IV. DRAFTING INDEMNIFICATION PROVISIONS


A. What Contract Terms Govern the Parties Rights 1. In drafting indemnification clauses, parties must first be clear regarding what contract terms are binding and they must execute contracts in a timely manner. Alabama: Fowler v. Weatherford, 1997 U.S. Dist. LEXIS 8136 (S.D. Ala. 1997). Federal court concluded that the terms of an equipment rental agreement, which a project superintendent signed upon delivery of the equipment, governed the parties relationship rather than the purchase order which the contractor had previously sent to the equipment company. As a result, the contractor was required to indemnify the leasing company pursuant to the terms of the rental agreement.

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California: Hansen Mechanical, Inc. v. Superior Court, 40 Cal. App. 4th 722, 47 Cal. Rptr.2d 47 (1995), rev. denied, 1996 Cal. LEXIS 1153 (1996). An equipment lessor sought indemnity from a contractor for a claim made against it by one of the contractors workers who was injured on a leased forklift. A California statute requires both parties to an indemnity agreement to sign the contract. The indemnity agreement was contained on the rental receipt, which was not signed by the equipment lessor. The court held that, because the indemnity agreement was not fully executed, it could not be enforced against the contractor. Georgia: Pioneer Concrete Pumping Serv., Inc. v. T&B Scottdale Contractors, Inc., 462 S.E.2d 627 (Ga. Ct. App. 1995). The court held that the terms and conditions on the reverse side of a subcontractors job ticket for construction work were sufficient to bind the contractor because the site supervisor had authority and signed the job ticket. This was in spite of the fact that the terms were not referenced on the front side of the ticket and the supervisor testified he did not read the terms. As a result, the contractor was required to indemnify the subcontractor for damages claimed by the family of an employee who was killed at the jobsite. The court held that the only remaining issue on remand would be a determination whether the subcontractor was solely negligent, thereby obviating the indemnity provision. Iowa and Nebraska: Merryman v. Iowa Beef Processors, Inc., 978 F.2d 443 (8th Cir. 1992). When mechanical contractors employee was struck by plant owners crane, the court refused to enforce indemnification provision buried in the boilerplate language on the back of the plant owners purchase order, noting that neither the purchase order not the acknowledgment form were signed by the contractor. Massachusetts: Polaroid Corp. v. Rollins Environmental Serv. (NJ), Inc., 624 N.E.2d 959 (Mass. 1993). The court enforced an indemnity provision in a purchase agreement, even though the hazardous waster transporter did not return an acknowledgment copy of the purchase agreement, because it found that the transporters performance of the terms of the agreement and failure to object to the indemnity agreement constituted acceptance of the indemnity obligations.

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B.

What Work is Indemnified In drafting indemnification provisions, parties must clearly define the scope of the agreements coverage in relation to the work to which the indemnity applies. Pennsylvania: Hershey Foods Corp. v. General Elec. Serv. Co., 422 Pa. Super. 143, 619 A.2d 285 (1992), appeal denied, 536 Pa. 643, 639 A.2d 29 (1993). When service contractors employee was killed in plant elevator, the contractors agreement to indemnify the plant owner was not enforced due to an ambiguity in the parties definition of the work covered by the indemnity agreement. It was unclear from the contract whether an accident occurring during the employees lunch break arose out of or resulted from the performance of electrical work in the plant.

1.

Unexecuted change orders/extras may not be covered if a court determines that work (which resulted in the loss) was not part of contract and therefore not covered by indemnification clause. Completed operations: was the indemnitor obligated to furnish completed operations insurance? If not, and only CGL insurance was procured, damages occurring after completed operations may not be covered by indemnification clause. Therefore, to determine indemnification coverage, look at contracts insurance requirements.

2.

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3. 4.

Construction work or architectural work: which does the indemnification clause address? Defective work claims: the majority and minority views as to whether the indemnity clause may be construed as a performance bond. (Minority: Florida and Arizona). Colorado: Bangert Bros. Const. Co., Inc. v. Americas Ins. Co., 66 F.3d 338 (10th Cir. 1995). The court affirmed a grant of summary judgment in favor of the insurer and against the general contractor in a claim for indemnity under its CGL policy. The contractor subcontracted out most of the concrete work for the runway at Denver airport. During construction, the owner discovered defects in the work and required the contractor to remove and replace it. The contractor did so and submitted claims on its CGL policy. The court noted that the use of subcontractors did not relieve the contractor of any of its obligations under the contract. The court stated that insurance was not a performance bond and could not be used to cover ones own defective work, and excluded the claim under the CGL policy Illinois: Monticello Ins. Co. v. Wil-Freds Const., Inc., 661 N.E.2d 451 (Ill. App. Ct. 1996). Where CGL insurer brought a declaratory action seeking a determination that it had no duty to defend or indemnify its insured general contractor in a breach of contract action arising out of defective construction of a building, the court held that construction defects did not constitute an occurrence within the meaning of the CGL policy and, even if they did, coverage was barred by the own products exclusion found in the policy. The court noted that defective work is not an accident, but rather the outcome of not following the contract.

C.

Which Parties Are Covered 1. Those specifically named as indemnitees trend has been to expand coveragee.g., AIA A-201 1976-1987: added specific reference to architects consultants as indemnities. Indemnity agreements do not and cannot limit rights of third-parties not in privity to the agreement. See Croydon Co., Inc. v. Unique Furnishings, 831 F. Supp. 480 (E.D.N.C. 1993). Third-party beneficiariese.g., adjacent land owners, visitors to site, parent companies coverage depends on normal contract interpretation rules. But see Kovich v. Paseo Del Mar Homeowners Assn., 41 Cal. App. 4th 863, 48 Cal. Rptr.2d 758 (2d Dist. 1996) (where a homeowners association sues for construction defects, the developer may not seek indemnity from individual unit/lot owners, since to allow such a claim would pit the owners against their association and thus undermine their special relationship). Active/passive negligence of indemnitee. Missouri: Allison v. Barnes Hosp., 873 S.W.2d 288 (Mo. Ct. App. 1994). An elevator maintenance contractor was not obligated to indemnify hospital-indemnitee for damages resulting when elevator door malfunctioned. The indemnity agreement only covered the negligence of the indemnitor, and the injured plaintiff had only alleged the negligence of the hospital. New York: Aragon v. 233 West 21st St., Inc., 201 A.D.2d 353, 607 N.Y.S.2d 642 (1st Dept. 1994). Subcontractors employee fell to his death when scaffolding collapsed. The court found that while the owner dispatched persons to observe the progress and method of brick restoration work on the project, this did not render the owner actively negligent so as to bar its indemnification claim against the general contractor who had the authority to direct, supervise and control the work.

2.

3.

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D.

For What Period of Time Will the Indemnification Clause Remain in Effect? Parties should clearly indicate whether they intend that the duty to indemnify will continue after the indemnitors work is complete. Iowa: Campbell v. Mid-America Constr. Co., 567 N.W.2d 667 (Iowa Ct. App. 1997), a court reviewed whether the indemnification clause in a fence erection subcontract was meant to remain in effect after the subcontract work was completed. The court reviewed the standard indemnification clause language which provided that the duty to indemnify was confined to damages and injuries arising out of, resulting from or connected to the execution of the subcontract work. The indemnification clause also provided that the subcontractor must obtain general liability insurance to insure the provisions of the indemnification paragraph. The court noted that general liability insurance does not typically continue after a subcontract is complete. Rather, a completed operations hazard endorsement would be necessary to insure the contractor against accidents which occur after completion of the work. The court further noted that it would be inconsistent and unreasonable to impose a duty to maintain insurance to cover an obligation for indemnity that is more narrow than the scope of the indemnity clause. By reading the contract as a whole, the court concluded that the inclusion of the subcontractors duty to obtain general liability insurance in the indemnification clause indicated the parties intent that the duty to indemnify would remain in effect only while the work was in progress. Minnesota: Seward Housing Corp. v. Conroy Bros. Co., 573 N.W.2d 364 (Minn. 1998). Owner of apartment building sued general contractor alleging negligence in the construction of the wall system and general contractor brought a third-party claim against the subcontractor for indemnification. The court held that the subcontractor was not liable for property damage which occurred at the building site more than one year after completion of its work on the project because the agreement with the general contractor only required the subcontractor to purchase general liability insurance covering damage occurring while the subcontractor was actually working on the project.

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E.

Choice of Law Parties may specify which states law shall apply to their contract, but should keep in mind that when the project relates to or involves two or more states, it may be difficult to predict which states law will apply. Alabama: Palmer G. Lewis Co. v. ARCO Chem. Co., 904 P.2d 1221 (Ala. 1995). In a case that concerned whether the suppliers implied indemnity claim was defeated by the manufacturers express indemnity defense, the court applied the law of the state where the contract was negotiated and entered, not the state whose law would have controlled the implied indemnity claim. Louisiana: Thomas v. Amoco Oil Co., 815 F. Supp. 184 (W.D. La. 1993). A construction company employee was injured in a gas explosion while performing services on a gas pipeline in Texas. Although the project was located in Texas, and the injury took place in Texas, the court applied Louisiana law to the employees claim for damages in excess of workers compensation. The court found Louisianas policies would be most seriously impaired if its laws [were] not applied since the plaintiff was domiciled in Louisiana, he was expected to return to Louisiana, and Louisiana would bear the social costs of his inability to work.

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Michigan: Chrysler Corp. v. Skyline Indus. Servs., Inc., 488 Mich. 113, 528 N.W.2d 698 (1995). Illinois, the place where the contract was to be performed, had a significant interest in enforcing its statute designed to regulate or deter specified business practices, such as indemnification. However, the Michigan Supreme Court noted that the parties contract specifically referenced a Michigan statute permitting indemnification, and upheld the rights of the parties to have their contractual expectations enforced. New Mexico: Tucker v. R.A. Hanson Co., 956 F.2d 215 (10th Cir. 1992). Federal court applied New Mexico law to void an indemnity provision in a construction contract. The parties contract was signed in California and performed in New Mexico. Although New Mexicos choice of law rules would indicate California law should apply, the court applied New Mexico law because construction indemnity clauses significantly interfere with New Mexicos efforts to produce safe workplaces and buildings.

F.

Incorporation by Reference Problems This is a typical problem on construction projects due to the incorporation by reference of prime contract provisions into subcontracts. Generally, where provisions which would be included by reference expand a partys liability, courts look upon them with disfavor. Careful drafting of incorporation by reference provisions will avoid this problem. To ensure reciprocity, the key provisions should be repeated in the applicable contract or the parties should use a properly drafted incorporation by reference clause which identifies the intended provisions by location and subject matter. Louisiana: Dowden v. Mid-State Sand & Gravel Co., 664 So.2d 643 (La. Ct. App. 3d Cir. 1995), cert. denied, 666 So.2d 1099 (La. 1996). A contractor entered into a contract with the State of Louisiana for highway construction. The contract incorporated the general highway specification manual, the Louisiana Standard Specifications for Roads & Bridges (1982) by reference, which in turn contained a section obligating the contractor to indemnify the Louisiana Department of Transportation & Development for claims arising out of, inter alia, the contractors negligence or misconduct. Massachusetts: Fox v. Marshall Const. Co., 1996 WL 64164, 1996 Mass. Super. LEXIS 242 (Mass. Super. Ct. Oct., 1996). A general contractor sought indemnification from various subcontractors on the basis of the indemnification clauses in the subcontracts and the indemnification clause in the general contract as applied to the subcontractors through an incorporation by reference provision in the subcontracts. The court held that the indemnification clause in the subcontracts was void under the Massachusetts anti-indemnity statute. In addition, the court held that neither the incorporation by reference clause, nor the savings clause in the general contract, would be applied because it was clear that the parties explicitly contracted for the express indemnification provisions found in their respective subcontracts, the placement of the incorporation clause in the subcontracts was separate and apart from the indemnification clauses, and the savings clause could have been inserted in the subcontracts but was not. The court noted that if the parties had intended the outcome sought by the general contractor, the clauses should have been so drafted. Missouri: Howe v. Lever Bros. Co., 851 S.W.2d 769 (Mo. Ct. App. 1993). Where the employee of a lower-tier subcontractor fell from scaffolding, the highertier subcontractor argued that the effective indemnification language in its contract with the general was incorporated by reference in its contract with its subcontractor. But the court said no, only the plans and specifications of the generals

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contract were incorporated in the sub-subcontract, not the indemnification language. Accordingly, the subcontractor had no contractual right to be indemnified.

CRT

G.

Workers Compensation Problems An agreement to indemnify the owner or general contractor for personal injuries may serve to waive the tort immunity a party has as an employer because one of its employees, if injured, could sue the owner or general contractor and be entitled to greater damages than the exclusive workers compensation remedies available. Delaware: Precision Air, Inc. v. Standard Chlorine of Del., Inc., 654 A.2d 403 (Del. 1995). Under Delaware law, an employer who has paid workers compensation to injured employee can still be contractually liable to third-party to the extent that the employer agreed to indemnify the third-party for claims arising from employers failure to provide a safe workplace. Illinois: Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 585 N.E.2d 1023 (1991). In Illinois, an employer may be liable for contribution of its injured employees claims, but only for an amount not exceeding its workers compensation liability. Indiana: Perryman v. Huber, Hunt & Nichols, 628 N.E.2d 1240 (Ind. Ct. App. 1994). The estate of an employee of the structural steel erector, who was killed when he fell from a building which was not equipped with OSHA-required exterior nets, sued the construction manager for negligence. The court held that while under the indemnity provisions, the construction manager could seek indemnification from the general contractor and subcontractor, the indemnification provisions in the contract and subcontract did not insulate the construction manager from liability but rather supported the conclusion that the construction manager assumed a contractual duty to comply with the applicable safety regulations. Iowa and Nebraska: Merryman v. Iowa Beef Processors, Inc., 978 F.2d 443 (8th Cir. 1992). The court stated, An employers agreement to forego its statutory right to limited workers compensation liability must be evidenced by something more than boilerplate terms buried on the back of a third-partys purchase order form, containing insurance conditions that the parties obviously ignored in fulfilling their primary contractual undertakings. Louisiana: Thomas v. Amoco Oil Co., 815 F. Supp. 184 (W.D. La. 1993). Contractors contractual liability to indemnify owner for employees injuries caused in gas explosion on site was not abrogated by the exclusive remedy provision of the workers compensation statute. Louisiana: Johnson v. Amoco Prod. Co., 5 F.3d 949 (5th Cir. 1993). Injured worker who was on the payroll of the company which contracted with the oil company to repair a compressor in an oil and gas processing facility was an employee of the company for the purposes of the indemnification provision of the contract. Thus, the company had a duty to defend and indemnify the oil company in the injured workers tort action arising out of the personal injuries at the oil companys facility. Pennsylvania: Kiewit Eastern Co. v. L & R Constr. Co., 44 F.3d 1194 (3d Cir. 1995). Indemnification clause stating subcontractors obligation to defend and indemnify shall not be limited by the provisions of the Pennsylvania Workers Compensation Act waived the subcontractors immunity under the Act.

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Rhode Island: Fish v. Burns Bros. Donut Shop, Inc., 617 A.2d 874 (R.I. 1992). Although the Rhode Island courts allow contractual indemnification as an exception to the exclusive remedy of workers compensation, where no written agreement existed between the property owner and the extermination contractor, and the contractor had already paid workers compensation benefits to its injured employee, the court refused to imply an equitable duty on the contractor to indemnify the owner against the employees claims, stating that equity need not intervene because [the exterminator] has not been enriched, unjustly or otherwise. Washington: Gilbert H. Moen Co. v. Island Steel Erectors, Inc., 128 Wash. 2d 745, 912 P.2d 472 (1996). Subcontractor agreed to indemnify the general contractor up to the extent of the subcontractors proportional fault. When the general contractor sought indemnification from the subcontractor for payments made to the subcontractors injured employee, the subcontractor argued that the agreement was void because of a state workers compensation statute that prohibited an employers waiving workers compensation immunity. The court held that the statute did not apply to indemnification agreements in the construction industry, and that subcontractor would be liable for amounts equal to its proportional fault.

H.

Effect of Settlement To recover indemnification for payments made in settlement of indemnity claims, an indemnitee generally must show that (1) the liability is covered by the contract, (2) that liability existed, and (3) the settlement was reasonable. Settlement is usually considered presumptive evidence of the liability of the indemnitee and of the amount of liability, but it may be overcome by proof from the indemnitor of no liability or that the settlement was unreasonable. Alabama: Stone Bldg. Co. v. Star Elec. Contractors, Inc., 2000 Ala. LEXIS 582 (Dec. 15, 2000). The court held that the key consideration is whether the indemnitor had notice of either the indemnity suit or the indemnitees settlement and the opportunity to be involved. If not, then the indemnitee has the burden of establishing that it was actually liable to the plaintiff and that the settlement was a reasonable one. If the indemnitor did have notice and an opportunity to defend or settle, however, he is bound by any good faith reasonable settlement, and the indemnitee need only show potential liability. Because the subcontractor could not show lack of notice, or that it was prejudiced by the contractors tardiness in notifying the subcontractor of an indemnity suit against them both and the contractors settlement negotiations with the claimant, the court held the subcontractor bound by the settlement obtained by the contractor. Cf. Hoffman Const. Co. of Alaska v. U.S. Fabrication & Erection, Inc., 22 P.3d 464 (Alaska 2000). Alaska: Palmer G. Lewis v. ARCO Chem. Co., 904 P.2d 1221 (Alaska 1995). An insulation manufacturer sought to defeat an insulation suppliers indemnity claim by raising the suppliers settlement with the building owner as proof of the suppliers liability. The court rejected this defense, however, because the settlement agreement explicitly stated that payment is not to be construed as an admission of liability on the part of persons or entities hereby released. Accordingly, the settlement did not establish the suppliers liability. West Virginia: Smith v. Monongahela Power Co., 189 W. Va. 237, 429 S.E.2d 643 (1993). In an action by the estate of a decedent electrocuted when the crane he was operating came in contact with high voltage power lines, the power companys right to seek contribution or indemnification from the crane manufacturer was extinguished by a settlement between the estate and the manufacturer where the amount of the settlement was disclosed to the trial court for the purpose of re-

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ducing the verdict against the power company, there was no indication that settlement was prompted by fraud or collusion, and the trial court had previously ordered bifurcation of the issues, so that settlement itself no way simplified the issues in the trial between the estate and the power company. I. Conflicting Provisions and/or Lack of Reciprocal Coverage Due to Ineffective Contract Negotiation, Drafting and Administration . Alaska: Palmer G. Lewis Co. v. ARCO Chem. Co., 904 P.2d 1221 (Ala. 1995). A manufacturer added an indemnity agreement to a confirmation order after negotiating and contracting had already taken place. The court held that the provision constituted an impermissible material change to the parties agreement, and refused to enforce it. However, the court remanded the case to the trial court to determine whether the purchaser agreed to the indemnity provision during contract negotiations. Louisiana: McKinney v. South Cent. Bell Tel. Co., 590 So.2d 1220 (La. Ct. App. 1991), cert. denied, 592 So.2d 1302 (La. 1992). Telephone company was required to indemnify the power company pursuant to agreement for their joint use of utility poles, but was not entitled to indemnity from its utility pole contractor where their agreement did not expressly contemplate the contractors indemnification of the telephone companys contractual liability to the power company. Missouri: Howe v. Lever Bros. Co., 851 S.W.2d 769 (Mo. Ct. App. 1993). Higher-tier subcontractor was required to indemnify the owner and general contractor, but was not entitled to indemnification from its lower-tier subcontractor because the lower-tier subcontract lacked the clear unequivocal indemnification language which appeared in the higher-tier subcontract.

CRT

J.

Attorneys' Fees. 1. Where a party is entitled to indemnification, it is also entitled to recover the attorneys fees incurred in defending a claim. However, since the term any liability in the indemnification clause was undefined, the court found that it did not include attorneys fees. See Schneider v. National Railroad Passenger Corp., 987 F.2d 132 (2nd Cir. 1993). An award of attorneys fees under an indemnification provision is a question of fact for the jury regarding the amount of fees incurred and their reasonableness. Only where the partys evidence is clear, accurate and uncontradicted may the court award attorneys fees as a matter of law. See Tenneco Oil v. Gulsby Engineering, 846 S.W.2d 599 (Tex. Ct. App. 1993) (jury awarded project owner $0.00 in attorneys fees). District of Columbia: Ideal Elec. Sec. Co., Inc. v. Intl Fidelity Ins. Co., 129 F.3d 143 (D.C. Cir. 1997). Where the indemnity agreement provided for the recovery of attorneys fees, the court held that the reasonableness of the fees could be challenged by the indemnitor following a full disclosure of all of the billing statements. The court found that redacted portions of billing statements were insufficient and complete billing statements were essential to determine the reasonableness of the charges incurred as a whole. Louisiana: Burns v. McDermott, Inc., 665 So.2d 76 (La. Ct. App. 1st Cir. 1995). Where the indemnity provision contained a clause providing for the reimbursement of the expense of the investigations and defenses of all claims and causes of action, the Louisiana Court of Appeals held that this language fairly included attorneys fees as cost of defense allocable to the indemnitor.

2.

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3.

A provision for attorneys fees under an indemnity clause does not constitute a right to recover attorneys fees incurred in efforts other than defending the claim indemnified against. Alabama: Stone Bldg. Co. v. Star Elec. Contractors, Inc., 2000 Ala. LEXIS 582 (Dec. 15, 2000). The court held that the contractor was not entitled to indemnification for the attorneys fees incurred in establishing its right of indemnity or defending allegations which encompassed its own separate wrongful acts. Thus, the contractor was held entitled to indemnity from the subcontractor only for its expenses of defense, including attorney fees, attributable specifically to [the contractors] defense against the claims and accruing after, and only after, [the contractor demanded indemnification from the subcontractor. California: Myers Bldg. Ind., Ltd. v. Interface Technology, Inc., 13 Cal. App. 4th 949, 17 Cal. Rptr.2d 242 (2d Dist. 1993), rev. denied, 1993 Cal. LEXIS 2945 (2d Dist. 1993). The trial court awarded contractor damages plus attorneys fees in a breach of contract suit regarding owner changes. On appeal, the award of attorneys fees was stricken because it applied only to third-party indemnification claims. Additionally, the California law which renders unilateral attorneys fee provisions reciprocal was held inapplicable to indemnity clauses since a contrary conclusion would defeat the purpose of an indemnity agreement. The very essence of an indemnity agreement is that one party hold the other harmless from losses Minnesota: Seifert v. Regents of the University of Minnesota, 505 N.W.2d 83 (Minn. Ct. App. 1993), review denied, 1993 Minn. LEXIS 758 (1993). The court held that, unless the indemnity agreement explicitly states otherwise, in a non-insurance context an indemnitee is not entitled to attorneys fees and costs incurred to establish the existence of an obligation to indemnify. The court noted to require NewMech to indemnify the Regents before a formal tender of defense would encourage indemnitees to defend claims on their own and then, after the fees have been incurred, notify the indemnitor and hold it liable for earlier costs. Minnesota: Diebold, Inc. v. Roadway Express, Inc., 538 N.W.2d 150 (Minn. Ct. App. 1995). When insurance is not involved, unless the parties agreement expressly provides otherwise, an indemnitee is not entitled to attorneys fees and costs spent to establish the right to indemnification.

K.

Duties of Indemnitor. Suggested language for a comprehensive indemnity clause is as follows: The duties of Indemnitor to Indemnitee shall include, but not be limited to (1) the defense of Indemnitee, by counsel acceptable to Indemnitee, against any and all claims arising out of or related to the performance of any Work hereunder or on or for the Project, regardless of whether the same is within or beyond the scope of Work, and (2) the retention of, or payment for, all consultants, experts, witness fees, attorneys fees, court costs or similar costs or expenses (all of which costs or expenses are hereinafter collectively referred to as litigation expense) incurred by the Indemnitee in the defense or prosecution of any claim for which the Indemnitor is or may be responsible. The Indemnitor shall, upon demand, promptly reimburse the Indemnitee in full for any and all litigation expense incurred by the Indemnitee whether in defending against the underlying claim or in litigating, arbitrating, mediating or negotiating any obligation of indemnity or defense hereunder or any appeal thereof. Litigation expense shall be paid to the Indemnitee no less frequently than monthly and within five (5) days of the Indemnitors receipt of a statement therefor from the Indemnitee, which statement shall be prima facie evidence of the reasonableness and correctness thereof. The Indemnitor

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shall cooperate, and secure the cooperation of its employees, agents, servants and others, in assisting the Indemnitee in asserting any and all defenses available to the Indemnitee. At its sole discretion, the Indemnitee may withhold, from time to time, from any monies otherwise due the Indemnitor hereunder or under any other contract or agreement, a sum of money which, in the sole judgment of the Indemnitee shall be sufficient to secure the performance of the Indemnitors obligations under this indemnification, hold harmless and defense agreement. In no event shall the Indemnitors obligations hereunder be limited to the extent of any insurance available to or provided by the Indemnitor. The Indemnitors obligations to defend the Indemnitee shall survive any judicial determination invalidating, in whole or in part, the provision of this Agreement requiring indemnification and shall apply regardless of whether or not the Indemnitee is found liable for negligence, in whole or in part.

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TABLE OF AUTHORITIES
A.S.I., Inc. v. Sanders, 835 F. Supp. 1349 (D. Kan. 1993), summ. jmt. denied, 1996 U.S. Dist. LEXIS 2484 (D. Kan. 1996)..... CRT25 Allison v. Barnes Hosp., 873 S.W.2d 288 (Mo. Ct. App. 1994). ............................ CRT32 Allwaste Environmental Servs. v. Pastore, 911 F. Supp. 29 (D. Me. 1996). CRT23 Aragon v. 233 West 21st St., Inc., 201 A.D.2d 353, 607 N.Y.S.2d 642 (1st Dept. 1994).................... CRT22, CRT32 Atlantic Mut. Ins. Co. v. Metron Eng. & Constr. Co., 83 F.3d 897 (7th Cir. 1996) CRT27 Automobile Ins. Co. v. United H.R.B. Gen. Contractors, Inc., 876 S.W.2d 791 (Mo. Ct. App. 1994) ................ CRT28, CRT30 Baker v. Barrons Educ. Serv. Corp., 670 N.Y.S.2d 587 (N.Y. App. Div. 1998) .. CRT21 Bangert Bros. Const. Co., Inc. v. Americas Ins. Co., 66 F.3d 338 (10th Cir. 1995). ... CRT32 Bethlehem Steel Corp. v. MATX, Inc., 703 A.2d 39 (Pa. Super. Ct. 1997). ........ CRT10 Biedzycki v. Northeast Illinois Regional Commuter Ry. Corp., 1998 WL 150724, 1998 U.S. Dist. LEXIS 4001 (N.D. Ill. Mar. 27, 1998) ....................... CRT12 Bjorkman v. Suffolk Constr. Co., 42 Mass. App. Ct. 591, 679 N.E.2d 559 (1997) ............................................... CRT20 Blake Elec. Contracting Co. v. Paschall, Inc., 222 A.D.2d 264, 635 N.Y.S.2d 205 (1st Dept. 1995). .......................... CRT24 Blue Cross v. McDevitt & Street Co., 234 Va. 191, 360 S.E.2d 825 (1987). ..... CRT30 Brown v. Boyer Washington Boulevard Assocs., 856 P.2d 352 (Utah 1993). ...... CRT13 Buccini v. 1568 Broadway Associates, 673 N.Y.S.2d 398 (N.Y. App. Div. 1998). . CRT21 Burgan v. City of Pittsburgh, 115 Pa. Commw. 566, 542 A.2d 583 (1988), app. denied, 521 Pa. 613, 557 A.2d 344 (1989). .............................................. CRT24 Burlington Northern R.R. Co. v. Chicago & Northwestern Transp. Co., 851 S.W.2d 28 (Mo. Ct. App.1993).............................. CRT25 Burns v. McDermott, Inc., 665 So.2d 76 (La. Ct. App. 1st Cir. 1995) ................... CRT37 Callahan v. A.J. Welch Equip. Corp., 36 Mass. App. Ct. 608, 634 N.E.2d 134 (1994) ................................................. CRT7 Campbell v. Mid-America Constr. Co., 567 N.W.2d 667 (Iowa Ct. App. 1997) ............................................CRT15, CRT33 Carvalho v. Toll Bros. & Developers, 278 N. J. Super. 451, 651 A.2d 492 (App. Div. 1995), cert. granted, 140 N.J. 326, 658 A.2d 726 (1995), and affd, remanded, 143 N.J. 565, 675 A.2d 209 (1996). ...... CRT12 Cella Barr Assocs., Inc. v. Cohen, 177 Ariz. 480, 868 P.2d 1063 (Ct. App. 1994)................................... CRT22 Chrysler Corp. v. Skyline Indus. Servs., Inc., 488 Mich. 113, 528 N.W.2d 698 (1995). .............................................. CRT34 Church v. General Motors Corp., 74 F.3d 795 (7th Cir. 1996)................... CRT14 CIG Exploration, Inc. v. Hill, 824 F. Supp. 1532 (D. Utah 1993), affd, 83 F.3d 431 (10th Cir. 1996)......... CRT18 City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d 1271 (Alaska 1994). ................................... CRT19 City of Pittsburgh v. American Asbestos Control Co., 157 Pa. Commission. 235, 629 A.2d 265 (1993). CRT18 Collins v. Kiewit Const. Co., 667 N.E.2d 904 (Mass. App. Ct. 1996). .. CRT11

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Continental Heller Corp. v. Amtech Mechanical Services, Inc., 53 Cal. App. 4th 500, 61 Cal. Rptr. 2d 668 (2d Dist. 1997), rev. denied, 1997 Cal. LEXIS 2609 (1997) ................................CRT8 Croall v. Massachusetts Bay Transp. Authority, 26 Mass. App. Ct. 957, 526 N.E.2d 1320 (1988)....................... CRT24 Croydon Co., Inc. v. Unique Furnishings, 831 F. Supp. 480 (E.D.N.C. 1993).......... CRT32 Dalton v. Childress Serv. Corp., 189 W. Va. 428, 432 S.E.2d 98 (1993). ................................... CRT9, CRT20 Davlar Corp. v. Superior Court, 53 Cal. App. 4th 1121, 62 Cal. Rptr. 2d 199 (2d Dist. 1997) ................................... CRT28 Diebold, Inc. v. Roadway Express, Inc., 538 N.W.2d 150 (Minn. Ct. App. 1995) ........................................... CRT25, CRT38 Dillard v. Shaughnessy, Fickel & Scott, 884 S.W.2d 722 (Mo. App. 1994)........... CRT13 Dixon v. Certainteed Corp., 944 F. Supp. 1501 (D. Kan. 1996).......... CRT11 Dowden v. Mid-State Sand & Gravel Co., 664 So.2d 643 (La. Ct. App. 3d Cir. 1995), cert. denied, 666 So.2d 1099 (La. 1996).CRT34 Ericksen v. Salt Lake City Corp., 858 P.2d 995 (Utah 1993). ................... CRT13 Erland Const. Co., Inc. v. Park Steel Corp., 671 N.E.2d 953 (Mass. App. Ct. 1996). .. CRT11 Federal Paper Bd. Co., Inc. v. Harbert-Yeargin, Inc., 53 F. Supp. 2d 1361 (N.D. Ga. 1999) ....................................CRT9 Field v. Norfolk & W. Ry. Co., 1998 WL 372090, 1998 U.S. Dist. LEXIS 19261 (N.D. Ill. 1998).......................... CRT19 Fiorello v. Universal Builders Supply Corp., 1997 WL 781829, 1997 Consoc. Super. LEXIS 3254 (Dec. 8, 1997). ........................... CRT16 Fire Ins. Exchange v. Thunderbird Masonry, Inc., 177 Ariz. 365, 868 P.2d 948 (Ct. App. 1993). .................................. CRT29

Fire Systems, Inc. v. Semac Elec., 1998 WL 376344, 1998 Consoc. Super. LEXIS 1818 (1998).............................. CRT14 Fish v. Burns Bros. Donut Shop, Inc., 617 A.2d 874 (R.I. 1992). .................... CRT36 Fowler v. Weatherford, 1997 U.S. Dist. LEXIS 8136 (S.D. Ala. 1997).................................. CRT30 Fox v. Marshall Const. Co., 1996 WL 64164, 1996 Mass. Super. LEXIS 242 (Mass. Super. Ct. Oct., 1996). CRT34 Gilbert H. Moen Co. v. Island Steel Erectors, Inc., 128 Wash. 2d 745, 912 P.2d 472 (1996)............................ CRT36 Gillmore v. Duke/Fluor Daniel, 221 A.D.2d 938, 634 N.Y.S.2d 588 (4th Dept. 1995). ................................. CRT7 Grunley Const. Co. v. Conway Corp., 676 A.2d 477 (D.C. 1996). ................... CRT16 Hagerman Const. Corp. v. Long Elec. Co., 741 N.E.2d 390 (Ind. Ct. App. 2000). ............................... CRT10, CRT14, CRT17 Hall Contracting Corp. v. Smith, 1998 WL 150783, 1998 Ky. App. LEXIS 29 (Ky. Ct. App. 1998), affd, 27 S.W.3d 775 (Ky. 2000).......................................... CRT21 Hamelin v. Simpson Paper (Vermont) Co., 702 A.2d 86 (Vt. 1997). ....................... CRT18 Hansen Mechanical, Inc. v. Superior Court, 40 Cal. App. 4th 722, 47 Cal. Rptr.2d 47 (1995), rev. denied, 1996 Cal. LEXIS 1153 (1996) ............... CRT31 Hauskins v. McGillicuddy, 175 Ariz. 42, 852 P.2d 1226 (Ariz. Ct. App. 1992), review denied, 177 Ariz. 279, 867 P.2d 849 (1994). ................................................ CRT9 Heat & Power Corp. v. Air Products & Chemical, Inc., 320 Md. 584, 578 A.2d 1202 (1990) ............................................... CRT24 Herrick Corp. v. Canadian Ins. Co., 29 Cal. App. 4th 753, 34 Cal. Rptr.2d 844 (1994), modified rehg denied, 30 Cal. App. 4th 93SB (4th Dist. 1994), rev. denied, 1995 Cal. LEXIS 259 (1995). ................ CRT29

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Gerald I. Katz

Hershey Foods Corp. v. General Elec. Serv. Co., 422 Pa. Super. 143, 619 A.2d 285 (1992), appeal denied, 536 Pa. 643, 639 A.2d 29 (1993) ............................. CRT31 Herter v. Ringland-Johnson-Crowley Co., 492 N.W.2d 672 (Iowa 1992) ................ CRT19 Hoffman Const. Co. of Alaska v. U.S. Fabrication & Erection, Inc., 22 P.3d 464 (Alaska 2000) ............................... CRT22, CRT25, CRT36 Holmes v. Morgan Guar. and Trust Co. of New York, 636 N.Y.S.2d 778 (N.Y. App. Div. 1996) ........................... CRT26 Houston Lighting & Power Co. v. Atchison, Topeka & Santa Fe Railway Co., 890 S.W.2d 455 (Tex. 1994). .......................... CRT14, CRT23 Howe v. Lever Bros. Co., 851 S.W.2d 769 (Mo. Ct. App. 1993) ................ CRT34, CRT37 Hurst-Rosche Engineers v. Commercial Union Ins. Co., 51 F.3d 1336 (7th Cir. 1995) .................................... CRT24 Ideal Elec. Sec. Co., Inc. v. Intl Fidelity Ins. Co., 129 F.3d 143 (D.C. Cir. 1997) .. CRT37 In Re Diamond Mfg. Co., 164 B.R. 189 (S.D. Ga. 1994). ................................. CRT22 International Paper Co. v. A&A Brochu, 899 F. Supp. 715 (D. Me. 1995)............. CRT17 Irwin v. Hoover Treated Wood Prods., Inc., 906 F. Supp. 530 (E. D. Mo. 1995). ........ CRT22 Itri Brick & Concrete Corp. v. Aetna Cas. & Sur. Co., 89 N.Y.2d 786, 658 N.Y.S.2d 903, 680 N.E.2d 1200 (1997)....................... CRT20 Johnson v. Amoco Prod. Co., 5 F.3d 949 (5th Cir. 1993). ................................... CRT35 Katzner v. Kelleher Constr., 545 N.W.2d 378 (Minn. 1996). ..................................... CRT20 Kerr v. Smith Petroleum Co., 896 F. Supp. 608, summ. jmt. granted, 909 F. Supp. 421 (E.D. La. 1995). .................................. CRT24 Kiewit Eastern Co. v. L & R Constr. Co., 44 F.3d 1194 (3rd Cir. 1995). ... CRT15, CRT35

Knipschield v. C-J Recreation, Inc., 74 Wash. App. 212, 872 P.2d 1102 (1994), rev. denied, 124 Wash. 2d 1027, 883 P.2d 326 (1994) ............................................... CRT26 Knowles v. Burlington Northern Railroad Co., 18 Kan. App. 2d 608, 856 P.2d 1352 (1993), rev. denied, 254 Kan. 1007 (1993). .............................................. CRT23 Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 585 N.E.2d 1023 (1991).CRT35 Kovich v. Paseo Del Mar Homeowners Assn., 41 Cal. App. 4th 863, 48 Cal. Rptr. 2d 758 (2d Dist. 1996). ..... CRT32 Krull v. Thermogas Co., 522 N.W.2d 607 (Iowa 1994). ...................................... CRT21 Leitao v. Damon G. Douglas Co., 693 A.2d 1209 (N.J. Super. Ct. A.D. 1997) ................................................ CRT11 Macon-Bibb County Indus. Auth. v. Nord Bitumi, U.S., Inc., 77 F.3d 417 (11th Cir. 1996) .................................. CRT29 Malecki v. Wal-Mart Stores, Inc., 635 N.Y.S.2d 888 (N.Y. App. Div. 1995) ........ CRT11 Man GHH Logistics GMBH v. Emscor, Inc., 858 S.W.2d 41 (Tex. Ct. App. 14th Dist. 1993) ................................................ CRT18 Martin v. Sears, Roebuck & Co., 24 F.3d 765 (5th Cir. 1994)................... CRT10 Maryland Cas. Co. v. Formwork Services, Inc., 812 F. Supp. 1127 (D. Colo. 1993). .................................. CRT20 McGoldrick v. Lou Ana Foods, Inc., 649 So.2d 455 (La. Ct. App. 3d Cir. 1994) ................................................ CRT17 McKinney v. South Cent. Bell Tel. Co., 590 So.2d 1220 (La. Ct. App. 1991), cert. denied, 592 So.2d 1302 (La. 1992). ...... CRT37 Medallion Dev., Inc. v. Converse Consultants, 930 P.2d 115 (Nev. 1997) .. CRT7 Merryman v. Iowa Beef Processors, Inc., 978 F.2d 443 (8th Cir. 1992). ....CRT31, CRT35 Monteleone v. Crow Const. Co., 673 N.Y.S.2d 408 (1st Dept. 1998)......... CRT26

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Monticello Ins. Co. v. Wil-Freds Const., Inc., 661 N.E.2d 451 (Ill. App. Ct. 1996). ............................................... CRT32 MSI Constr. Managers, Inc. v. Corvo Iron Works, 208 Mich. App. 340, 527 N.W.2d 79 (1995)........................................... CRT13 Myers Bldg. Ind. Ltd. v. Interface Technology, 13 Cal. App. 4th 949, 17 Cal. Rptr.2d 242 (2d Dist. 1993), review denied, 1993 Cal. LEXIS 2945 (2d Dist. 1993) ........................................... CRT23, CRT38 Narvaez v. 4518 Assoc., 672 N.Y.S.2d 859 (N.Y. App. Div. 1998). .......................... CRT12 National Union Fire Ins. Co. v. Showa Shipping Co., Ltd., 47 F.3d 316 (9th Cir. 1995) ......................................CRT8 Negroni v. East 67th Street Owners, Inc., 671 N.Y.S.2d 464 (N.Y. App. Div. 1998) ............................................... CRT7, CRT8 New Zealand Kiwifruit Marketing Bd. v. City of Wilmington, 825 F. Supp. 1180 (D. Del. 1993).......................... CRT7, CRT16 Nguyen v. Lewis/Boyle, Inc., 899 F. Supp. 58 (D. R. I. 1995). ...................... CRT14, CRT15 Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10 (2d Cir. 1993). ......... CRT18, CRT22 Olin Corp. v. Yeargin Inc., 146 F.3d 398 (6th Cir. 1998)........................ CRT10, CRT23 Palmer G. Lewis Co. v. ARCO Chem. Co., 904 P.2d 1221 (Ala. 1995) ............................... CRT33, CRT36, CRT37 Perryman v. Huber, Hunt & Nichols, 628 N.E.2d 1240 (Ind. Ct. App. 1994). ... CRT35 Peter Culley & Assoc. v. Superior Court, 10 Cal. App. 4th 1484, 13 Cal. Rptr.2d 624 (1st Dist. 1992), modified, rehg denied, 11 Cal. App. 4th 1206E (1st Dist. 1992) . CRT12 Petito v. Beaver Concrete Breaking Co., 161 Misc. 2d 363, 613 N.Y.S.2d 523 (Civ. Ct. 1994) .................................... CRT26 Pioneer Concrete Pumping Serv., Inc. v. T&B Scottdale Contractors, Inc., 462 S.E.2d 627 (Ga. Ct. App. 1995). ...................... CRT31

Polaroid Corp. v. Rollins Environmental Serv. (NJ), Inc., 624 N.E.2d 959 (Mass. 1993) ...................................... CRT31 Polaroid Corp. v. Rollins Environmental Servs., Inc., 416 Mass. 684, 624 N.E.2d 959 (1993). .............................................. CRT23 Precision Air, Inc. v. Standard Chlorine of Del., Inc., 654 A.2d 403 (Del. 1995) ............................................CRT16, CRT35 Richardson v. John F. Kennedy Memorial Hosp., 838 F. Supp. 979 (E.D. Pa. 1993) ........................................................ CRT14 Richmond Steel, Inc. v. Legal & Gen. Assurance Society Ltd., 821 F. Supp. 793 (D. P.R. 1993).........................CRT28, CRT30 Rivers & Bryan, Inc. v. HBE Corp., 628 A.2d 631 (D.C. 1993). ................... CRT19 Rosato v. Karl Koch Erecting Co., Inc., 865 F. Supp. 104 (E.D.N.Y. 1994). ......... CRT29 ROTEC, Inc. v. Murray Equip., Inc., 626 N.E.2d 533 (Ind. Ct. App. 1993). ...... CRT7 Royal Ins. Co. of Amer. v. R.E. Grills Const. Co., Inc., 242 F.3d 1035 (11th Cir. 2001) ........................................................ CRT21 Salt Lake City Corp. v. Kasler Corp., 842 F. Supp. 1380 (D. Utah 1994), amended on recon., 855 F. Supp. 1560 (D. Utah 1994). ........ CRT15 Schneider v. National Railroad Passenger Corp., 987 F.2d 132 (2nd Cir. 1993) ...... CRT37 Sciaba Constr. Corp. v. Frank Bean, Inc., 681 N.E.2d 288, 43 Mass. App. Ct. 66 (1997) ........................................................ CRT20 Scott Galvanizing, Inc. v. Northwest Enviro Services, Inc., 120 Wash. 2d 573, 844 P.2d 428 (1993). .............................................. CRT22 Seifert v. Regents of the Univ. of Minn., 505 N.W.2d 83 (Minn. Ct. App. 1993), review denied, 1993 Minn. LEXIS 758 (1993). ............................... CRT20, CRT25, CRT38 Seward Housing Corp. v Conroy Bros. Co., 573 N.W.2d 364 (Minn. 1998) ............... CRT33 Sherman v. DeMaria Bldg. Co., 203 Mich. App. 593, 513 N.W.2d 187 (1994). ............... CRT11

CRT

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Slater v. Central Plumbing & Heating Co., 275 Montgomery County Circuit Court. 266, 912 P.2d 780 (1996). ........................... CRT17 Smith v. Lyles, 839 F. Supp. 18 (N.D. Ill. 1993..................................... CRT16 Smith v. Monongahela Power Co., 189 W. Va. 237, 429 S.E.2d 643 (1993). ................ CRT36 Southwest Nat. Bank v. Simpson & Son, Inc., 14 Kan. App. 2d 763, 799 P.2d 512 (1990). .............................................. CRT24 Spell v. NL Industries, Inc., 618 So.2d 17 (La. Ct. App. 1993), cert. denied, 624 So.2d 1224 (La. 1993). ................................. CRT17 Stone Bldg. Co. v. Star Elec. Contractors, Inc., 2000 Ala. LEXIS 582 (Dec. 15, 2000) ........................................... CRT36, CRT38 Sun Co., Inc. v. Brown & Root Braun, Inc., 1999 U.S. Dist. LEXIS 13453 (E.D. Pa. Sept. 2, 1999). ................................... CRT12 Tanns v. Ben A. Borenstein and Co., 688 N.E.2d 667 (Ill. App. 1997)............. CRT19 Tenneco Oil v. Gulsby Engineering, 846 S.W.2d 599 (Tex. Ct. App. 1993) ........................................... CRT18, CRT37 Thomas v. Amoco Oil Co., 815 F. Supp. 184 (W.D. La. 1993). .................... CRT33, CRT35 Touchet Valley Grain Growers, Inc. v. Opp & Seibold Gen. Constr., Inc., 119 Wash. 2d 334, 831 P.2d 724 (1992). CRT29 Transamerica Ins. Co. v. Avenell, 66 F.3d 715 (5th Cir. 1995). .................. CRT23 Trump-Equitable Fifth Ave. Co. v. H.R.H. Constr. Corp., 106 A.D.2d 242, 485 N.Y.S.2d 65 (1st Dept. 1985), affd, 66 N.Y.2d 779, 497 N.Y.S.2d 369, 488 N.E.2d 115 (1985)..... CRT28 Tucker v. R.A. Hanson Co., 956 F.2d 215 (10th Cir. 1992). ................................. CRT34 Turner/Ozanne v. Hyman Power, February 11, 2000 Proposal F.3d 1312 (7th Cir. 1997) .................................... CRT19 U.S. Underwriters Ins. Co. v. Held Bros., Inc., 1998 WL 355425, 1998 U.S. Dist. LEXIS 9694 (S.D.N.Y. Jun. 29, 1998)............... CRT26

United States Fidelity & Guar. Co. v. Farrar's Plumbing & Heating Co., 158 Ariz. 354, 762 P.2d 641 (Ct. App. 1988)...................... CRT28 United States v. Hardage, 985 F.2d 1427 (10th Cir. 1993). ................................. CRT22 Urban Investment & Dev. Co. v. Turner Constr. Co., 35 Mass. App. Ct. 100, 616 N.E.2d 829 (1993)......................................... CRT17 Valloric v. Dravo Corp., 178 W. Va. 14, 357 S.E.2d 207 (1987). ....................... CRT26 Van Vickle v. C.W. Scheurer and Sons, Inc., 556 N.W.2d 238 (Minn. Ct. App. 1996). .. CRT15 VanKirk v. Green Construction Co., 195 W. Va. 714, 466 S.E.2d 782 (1995), cert. denied, 518 U.S. 1028 (1996). ......................... CRT10 Village of Fox River Grove v. Grayhill, Inc., 806 F. Supp. 785 (N.D. Ill. 1992)........... CRT22 Village of Rosemont v. Lentin Lumber Co., 144 Ill. App. 3d 651, 494 N.E.2d 592 (1st Dist. 1986). ................................. CRT30 W.M. Schlosser Co., Inc. v. Maryland Drywall Co., Inc., 673 A.2d 647 (D.C. 1996). ......................................... CRT9 Wallace v. Sherwood Constr. Co., 877 P.2d 632 (Okla. Ct. App. 1994). ................... CRT10 Webb v. Lawson-Avila Constr. Co., 911 S.W.2d 457 (Tex. Ct. App. 1995). .......... CRT15 Willis Realty Assocs. v. Cimino Constr. Co., 623 A.2d 1287 (Me. 1993). .................. CRT30 Winter v. Smith, 914 S.W.2d 527 (Tenant Work Contract. Ct. App. 1995)..... CRT8 Wisconsin Natural Gas Co. v. Gabes Const. Co., Inc., 220 Wisc. 2d 14, 582 N.W.2d 118 (Wisc. Ct. App. 1998). ......................... CRT27 Wolfe v. Canal Marine Repair, Inc., 660 So.2d 899 (La. Ct. App. 4th Cir. 1995). .. CRT11 Zielinski v. Chris W. Knapp & Son, Inc., 277 Ill. App. 3d 735, 214 Ill. Dec. 340, 660 N.E.2d 1289 (3d Dist. 1995), app. denied, 167 Ill. 2d 571, 667 N.E.2d 1063 (1996). .............. CRT21

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